In Addition To His $14.3 Million In Stock "Outright", Mr. Frazier Holds "Rights To Acquire" At Least 1.3 Million MORE Shares: Well-Aligned.

As a few more semi-automated drone-financial-publishers blather on -- about Mr. Frazier's exercises and sales of yesterday, I thought I'd call out, as a new post, the vast number of shares he has the right to acquire. And these shares are in addition to his direct holdings. That "right to acquire" figure stands at at least 1.32 million, as of the last proxy filing (see page 46). [He has been granted more since then, but I'll not dig through the SEC archives to find them, as we will see them in a few weeks, as updated, when Merck's new proxy for this year-end cycle is filed.]

Significantly, with Merck trading at or above $53 on the NYSE over the last few weeks, all of these 1.32 million option shares are "in the money". That is, Mr. Frazier could immediately exercise about one million shares (the other 320,000 or so will vest in the coming couple of years) -- if he chooses to suffer through, and pay the taxes, at ordinary income rates (as opposed to capital gain rates) -- and sell them without any meaningful risk of any loss. In that sense, these 1 million option shares (albeit unexercised, but vested) should be seen as additional equity interest alignment, with the common shareholders.

Now, it is certainly true that his losses, overall, should the stock turn south, at least on these 1 to 1.32 million shares, will be proportionately smaller than those experienced by an ordinary common shareholder holding a like amount, for he will have paid less for his, in all likelihood. And should Merck stock roll onward, north -- his gains will be amplified, as compared to a straight common holder, on these 1.32 million shares (as again, he has paid less, in all likelihood). [The graphic at right shows the fully granted amount of unvested options, as well -- as a separate line item for 1.2 million shares.] But remember, he also holds $14.3 million worth of "ordinary" common shares. In that sense -- he IS a common stockholder (and a very large one).

So, I guarantee you that his interests are very-closely aligned with those of the the common stockholders. [Some other quiet snowy morning/day, I will contrast this Merck philosposhy of compensation/incentive alignment (with the ordinary stockholders), with the runaway land-grabs authorized at legacy Schering-Plough, by its board compensation committee, and compensation consultants. There the bets were always stacked -- so that from 2005 to 2009, at least, the executives (especially the Chairman and CEO) literally could not lose. That's my experienced opinion. And Mr. Hassan walked away with perhaps $235 million, all in, for wrecking the company. Nice.] Yes. Another day. Another day. Keep calm, and. . . Carry on.

Merck's 2012 Spending On US Lobbyists Eclipsed $10 Million -- A New Record

Merck's lobbying spend-trend is detailed in the graphic at right. The 2012 level is a record -- even if one looks back in time, and artificially combines legacy Schering-Plough total spend -- together with legacy Merck, pre-merger. For so long as such disclosures have been available (since the early 2000s), the lobbyist spending has never been more than $10 million in a year. Until now.

By way of comparison, I'll note that Apple (the second largest company worldwide, by market cap) spent $2 million in 2012 -- on lobbying. I know, different industry, but still highly entwined in tech, patent and tax law and policy issues. And Apple spends a fifth of what Merck does. However, to be fair -- each number is definitively immaterial to either company, overall -- but at Apple, the $2 million is literally not even a rounding error

During the last three years then, Merck (or firms and lobbyists it hired) lobbied on specific measures as indicated in the parentheticals, or if no bill is indicated, generally about (among other matters):

Δ Against expansion of the Prescription Drug User Fee Act, during reauthorization discussions (no specific bill)

Δ Liberalizing favorable federal income tax treatment (tax-sheltering) repatriation of foreign net profits (no specific bill), and liberalizing deferral of taxation of foreign earned income

Δ Generally, on government budget issues, including Medicare Part D rebates. Discussions and possible legislation amending Title XVIII, Part D (Medicare Part D) of SSA, including issues of "non-interference clause" and Medicare Advantage. Legislation to address physician payments issues, including SGR and related provisions to Medicare package. Health reform implementation. Independent Payment Advisory Board. Support efforts to ensure appropriate access to vaccines and preventive care. . . .

Δ Improving treatment of transfer pricing of intangibles (no specific bill)

Δ Opposing unrestricted re-importation of pharmaceuticals (no specific bill)

Δ In favor of incentives for antibiotic research and devlopment (H.R. 2182); hepatitis C education (no specific bill)

Δ Alleviating pharmaceutical shortages (S. 296, HR. 2245)

Δ In favor of comprehensive tax reform (no specific bill); transfer pricing of intangibles (no specific bill)

Δ In favor of renewal and expansion of the R&D tax credit (H.R. 942); repatriation (no specific bill); territorial tax system (no specific bill)

Δ In favor of Patent law reform (H.R. 1249)

Δ In favor of Access to over-the-counter medications (no specific bill)

Δ In favor of Non-interference in Medicare Part D (no specific bill)

Δ Against Medicaid-style rebates in Medicare Part D (no specific bill)

Δ Against Independent Payment Advisory Board (H.R. 452, S. 668)

Δ In favor of increasing the number of people eligible for health insurance coverage

Δ In favor of U.S. fedeeral deficit reduction (no specific bill)

Δ Lobbying about the WTO Cotton agreement (H.R. 2112)

Δ In favor of FDA funding (H.R. 2112)

Δ In favor of ADAP funding (no specific bill)

Δ In favor of Korea, Colombia and Panama Free Trade Agreements (no specific bills)

Δ In favor of data exclusivity in free trade agrements (no specific bills)

Δ In plainer English then, Merck lobbied to oppose government negotiated prices -- on drugs purchased by government programs, beyond what already exists in the current scheme

Δ And -- of course -- implementation issues regarding H.R. 3590, the Patient Protection and Affordable Care Act. More plainly, Merck is seeking advantage as the ACA of 2010, and health care reform, more generally, continues to be implemented by the Obama administration. . . .

There. Now you know.