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Japan Generic Medicines Association

Generic Challenge In Japan

Tamotsu Fujino Japan Generic Medicines Association at New York Pharma Forum Sept 29, 2009

Japan Generic Medicines Association

• Established : 1968
• Name : Japan Generic Medicines Association (JGA)

Renamed in April 2008 from former Japan Generic Pharmaceutical Manufacturers Association（JGPMA)

• Members:

44 Companies （Regular members）

• President:

Hiroyuki Sawai

• Associated with

a) Federation of Pharmaceutical Manufacturers’ Associations of Japan (FPMAJ) b) International Generic Pharmaceutical Alliance (IGPA)

2 Japan Generic Medicines Association

• 1. Global Generic Market (2008)

ⓒ 2009 IMS Health. All right reserved. Source: IMS Health, MIDAS, Market segmentation, Rx only, Dec 2008; 27 Market Segmentation Countries, Ex - Mfr basis

3 Japan Generic Medicines Association

1-2. Global Generic Shares (2008)

17 17 20 20 33 33 35 35 40 40 61 61 64 64 66 66 69 69 50 50 20 40 60 80 Ja Japan pan* Japa apan Italy taly Spai pain Fran ance U.K .K. Ger German any Can Canad ada U.S. .S. Tota tal l Mar Marke ket

ⓒ 2009 IMS Health. All right reserved. Source: IMS Health MIDAS Market Segmentation, Rx only, Dec 2008. Ex-Mfr basis. *Japan: JGA’s 2007 Data

Volume(%)

4 Japan Generic Medicines Association

1-3. Global Generic Shares of Off-Patent Products (2008)

ⓒ 2009 IMS Health. All right reserved. Source: IMS Health MIDAS Market Segmentation, Rx only, Dec 2008. Ex-Mfr basis. Volume（％）

5 Japan Generic Medicines Association

1-4. Global Major Generic League

6

GENERICS bulletin, 1 June 2009

Japan Generic Medicines Association

1-5. Global Generic Minor League

7

GENERICS bulletin, 1 June 2009

Japan Generic Medicines Association

• 2. Japanese Generic Classification in 2007

Reimbursement List

8

Generic Medicines in Japan are not fully legally defined but reimbursable items as generics are clear and convenient for listing as below.

ＣＡＴＥＧＯＲＩＥＳ

Items Share by Volume Share by Value

1) Original

a) w/ Patent 1,893 （1,761） 21.6％ （21.4％） 49.0％ （47.6％） b) Off-Patent 1,528 （1,430） 34.9％ （34.9％） 35.1％ （35.4％）

2) Generics

6,700 （6,016） 18.7％ （16.8％） 6.6％ （5.9％） 3) Others(JP, Herbs） 4,238 （4,104） 24.8％ （27.0％） 9.3％ （11.2％）

Source：MHLW Price Investigations’05 & ’07 Figures in ( ) are from 2005

Japan Generic Medicines Association

2-2. Japan’s Generics Sales Recent Share Trend of Generics

9

Source: JGA

Japan Generic Medicines Association

• 3. Members Current Business Status (2007)
• Annual Sales (Responded 42 companies)

Total Sales Turnover (42 companies) 425.8 billion yen * More than 10 billion yen/year 11 companies (out of which more than 30 billion yen 4 companies) 6 to 10 billion yen 12 companies less than 6 billion yen 19 companies (out of which less than 2 billion yen 5 companies)

• Capital (Responded 44 companies)

More than 2 billion yen 5 companies Less than 50 million yen 3 companies Less than 0.5 billion yen 30 companies

*other pharmaceutical products are included

10

Source:JGA

Japan Generic Medicines Association

3-2. Members Current Business Status (2007)

• Main Business (Responded 42 companies)

Mainly Ethical Medicines 40 companies Mainly OTC Medicines 1 companies Mainly APIs 1 companies

• Distribution (Responded 41 companies)

Mainly Wholesalers 11 companies Mainly Wholesale Agents 13 companies Mainly Consignments 9 companies Others 8 companies

• Employees (Responded 44 companies)

Total 15,090 (out of which part-timers and temp staff 1,879) Number of companies w/no less than 1000 3 companies “ with less than 50 2 companies “ with less than 300 29 companies

• Sales Value per Employee

No less than 40 million yen 8 companies Less than 20 million yen 12 companies Less than 30 million yen 29 companies

Source:JGA

11 Japan Generic Medicines Association

3-3. Members Current Business Status (2007)

• Number of Detailmen (Responded 43 companies)

Total 2,870 No less than 300 2 companies More than 100 and less than 300 6 companies Less than 100 35 companies

• Number of Listed Reimbursable Medicines (44 companies)

Total 5,809 (corresponding to 36.6% of all listed 15,868 products) No less than 200 products 12 companies Less than 10 products 3 companies Less than 100 products 24 companies

• Number of Supplementary Listing Medicines in July 2008 (Responded 44

companies) Total 358 (corresponding to 77.3% of all supplementary -listed 463 products) No less than 30 products 1 company No product 7 companies Less than 10 products 28 companies

Source:JGA

12 Japan Generic Medicines Association

3-4. Members Current Business Status (2007)

• R & D Expenses

Total 24.2 billion yen No less than 2 billion yen 2 companies Less than 50 million yen 8 companies Less than 500 million yen 29 companies

• R&D Ratio vs. Sales

No less than 15.0% 3 companies Less than 5.0% 23 companies Less than 10.0% 38 companies

13

Source:JGA

Japan Generic Medicines Association

3-5. Members Current Business Status (2007)

14

Sales Evolution 2003-2007 (42 companies responded) (Billion Yen)

40 COs/2003 37 COs/2004 37 COs/2005 39 COs/2006 42 COs/2007

Total Sales 294.8 302.0 338.1 390.8 425.8 Medicines 266.7 272.0 304.7 358.2 392.1 Ethicals 228.5 232.1 260.5 309.8 342.4 OTCs 10.3 8.9 12.7 13.6 11.8 Diagnostics 15.7 16.6 17.3 18.5 20.1 APIs 12.2 14.4 14.2 16.3 17.8 There is no continuity due to differences in membership in respective years and no retrospective traceability of the previous years’ results.

Financial Results of Latest 5 Years (39 companies responded with full retrospective data) (Billion Yen)

2003 2004 2005 2006 2007

Sales Turnover

296.8 313.6(105.7%) 346.5(110.5%) 391.2(112.9%) 413.2(105.6%)

Gross Profit

110.3 116.5(105.6%) 131.1(112.5%) 142.9(109.0%) 148.1(103.6%)

Operating Expenses

77.4 85.2(110.1%) 95.5(112.1%) 105.8(110.8%) 114.2(103.6%)

Operating Profit

32.9 31.2(94.8%) 35.6(114.1%) 37.1(104.2%) 33.8(91.1%)

Current Profit

30.2 30.2(100%) 35.7(118.2%) 36.2(101.4%) 32.1(88.7%) Differences in two tables are caused by differences in membership and with or without retrospective traceability. Figures in parentheses are ratios against previous years.

Source:JGA

Japan Generic Medicines Association

3-6.Members Current Business Status (2007)

15

Sales by Formulations (39 companies responded) (Billion Yen)

Oral Injectable Topical Total 195.2 67.9 39.7 302.8

R & D Expenses vs. Sales Turnover ( 39 companies responded) (Billion Yen)

2003 2004 2005 2006 2007

R&D Expenses

20.0 21.9 22.6 23.9 23.4

Ratio vs. Sales

6.7% 7.0% 6.5% 6.1% 5.7%

Ratio vs. Previous Year

109.5% 103.2% 105.8% 97.9% R&D expenses ratio is about 6%. Member companies are investing in formulation development to give added values to their products.

Source: JGA

Japan Generic Medicines Association

3-7.Members Ranking by Generic Registrations

16 Japan Generic Medicines Association

No No Company JGA Generic Registrations Latest Turnover*

*Only those latest available

1 Taiyo 524 524 42.0 2 Towa 447 447 36.0 3 Sawai 361 361 44.3 4 Nichiiko 288 288 40.1 5 Mylan 259 259

• 6

NiproPharma 232 232

• 7

Tatsumi 220 220 4.5 8 Choseido 198 198 5.6 9 Tsuruhara 193 193

• 10

10 Kyowa 190 190 9.5 11 11 Nisshin 187 187

• 12

12 Fuji 169 169 14.9 non-member 13 13 Maruko 169 169

• Acquired by Nichiiko

14 14

Medisa Shinyaku

160 160

• 15

15 Yoshindo 160 160 8.7 16 16

Taisho Yakuhin

159 159 10.0 17 17

Kobayashi Kako

154 154

• 18

18 Isei 151 151

• 19

19

Shiono Chemical

144 144 17.9 non-member 20 20 Takata 130 130 13.6 21 21 Termo 108 108 302.7 non-member 22 22

Kyorin Rimedio

107 107 6.0 23 23 Iwaki 91 91

• 24

24 Fuso 90 90 45.9 non-member 25 25 Ohara 85 85

• 26

26 TeikokuMedix 84 84 10.7 Acquired by Nichiiko 27 27 Sandoz 77 77

• Source: JGA & Gekkan Generic Aug 2009

• 4. Development Flow for Generics

17

Saishin Generic Iyakusenryaku, Johokiko, Aug 2009

Japanese Generic Medicines are approved with the same kind and level of data as in the USA and Europe. Japan Generic Medicines Association

FORMULATION DEVELOPMENT STAGE GENERIC DEVELOPMENT FLOW

I PREFORMULATION ・Literature & Patent Search ・Reexamination Period & Market Research ・API Search & Quality, Property Evaluation ・Originator Reference Analysis ・Combination Analysis with Excipients II FORMULATION DEVELOPMENT ・Optimization of formulation by test products Preliminary stability test(accelerated, severe conditions) Dissolution tests for tablets, capusels ・Production method development ・Packaging design III SCALE-UP, TECHNOLOGY TRANSITION ・Production of application 3 lots & clinical study lot ・Bioequivalence study ・Stability tests ・Establishment of specificatons & test methods ・Approval Application ・Validation PRODUCT SELECTION API EVALUATION FORMULATION DEVELOPMENT Approval Application 3 Lots; Clinical Study Lot STABILITY STUDY BIOEQUIVALENCE STUDY APPROVAL APPLICATION ACTUAL PRODUCTION VALIDATION APPROVAL

Ｉ ＩＩ ＩＩＩ

18

Now Government introduced a new promotion policy for generics by the medical system reform in 2008 Major Reasons:

1)Incentives are not given sufficiently to MDs and Pharmacists 2) Off-patent products keep their strong presence after patent expiry 3) Medical professionals and patients are not well informed about generics 4) The payers are not demanding so much as in other countries 5) Periodical (now every 2 years) reduction of reimbursement prices reflecting actual market competition and only twice a year registration

in the reimbursement list

• 5. Why have Japanese Generic Medicines Stagnated?

Japan Generic Medicines Association

• 6. New Government Policy

to Support Generic Medicines

A) Generics’ volume share shall be increased to more than 30% by March 2013

A Longevity society increased elderly population and needs for more medical care. Control of the medical expenditure of the Health Insurance System is now very important for the Government. Increase of generic use is demanded to maintain good quality of healthcare while economizing the required cost. Thus, Japanese Government demands the pharmaceutical industry supply generics more than 30% in volume by March 2013 and has taken several stimulating measures as follows: 1) Prescription Format Re-revision 2) Revision of Rules of Treatment/Reimbursement for physicians and pharmacists 3) Addition of extra dispensing fee of 40 yen for all dispensing of those pharmacies whose generic dispensing volumes surpass more than 30% of their total dispensing

• prescriptions. (If one of the dispensed medicines on one prescription is generic, it is

counted as part of total generic prescriptions) 4) MHLW created a generic promotion poster

19 Japan Generic Medicines Association

6-2.New Governmental Policy (Target)

20

Originators Off-patent Products Generics Others 21.6% 34.9% 18.7% 24.8% Volume in Sept, 2007 Volume in Mar, 2013 30.0% Target “Others” include herbal drugs, biologics (vaccines, blood products), pharmacopeial products, products approved before 1967,etc.

Japan Generic Medicines Association

6-3. New Government Policy to Support Generic Medicines

In addition, MHLW established an action program for the industry to conduct as follows:

B) Action Program for Assured Usage Promotion of Generic Medicines by

MHLW (Issued in October, 2007)

Program Objectives In order to enhance reliability of Generic Medicines and promote their assured usage by the patient and medical professionals, improvement shall be made on the following issues: Industry: 1) to ensure steady supplies of once registered products, 2) to ensure good quality of products 3) to provide sufficient information of generic medicines, Regulatory authorities: 4) to improve market conditions for increased use, and 5) National Health Insurance system modification should be well taken care of

• 21

Japan Generic Medicines Association

22

Sc Scrip Format at Re Re-revi visio sion

7．New Start? Scrip Format Re-revision

Use of Generics has become standard prescription Previous) “In case changeable into Generics”, Signature of MD is given ↓ New)”In case not changeable into generics”, Signature of MD is given

Japan Generic Medicines Association

23

The Promotion Poster by MHLW for Generics

Emphasis is on: ① Economy (Cost Effectiveness) ② Equivalent Efficacy/Safety to the

• riginal

③ Wide use in EU, US, etc.

7-2．New Start? MHLW created a Poster

for Generic Promotion

Japan Generic Medicines Association

JGA initiated its own activities to respond to the Government’s program by the following policy and objectives: Japan Generic Medicines Association 24

• 8. JGA’s ” Reliability Improvement Project”

(Issued in Aug ,2007)

Dispatch shipments to distributors on the same day or next day as much as possible Keep inventry of more than one month both in own house and at distributors Distribute nationwide Members’ Quick Reference Table for Placing Orders to related organizations Plan an increase of Supply Capacity to 2.5-5 times more in 2012 than the level in 2006 Data Provision on Quality Tests and Long-Term Stability Tests by Lot; Stability Data of Bulk Tablets Literature Search on Quality and Efficacy of Generics, their Evaluation and Feedback Data Provision on Dissolution Tests of actual production lots designated for Quality Reevaluation Post in the Package Insert Bioequivalence Data and Stability Data Post in the designated time period the Revised "Caution for Use"at PMDA Web, and Distribute the notice to medical professionals Provide promptly to medical professionals such data as DI, Package Insert, Data for Bioequivalence and Dissolution Tests, Stability, Safety when requested Support Member companies' Detailmen administration and education; Organize network and support system. Steady Supplies Ensured Quality Appropriate Provision of Information

9.Stakeholders and Measures by Industry

Japan Generic Medicines Association 25

Physic icia ians Pharmac rmacis ists Payers rs,（Insuran rance Funds ds） Medic dical l Institu itution ions Patie ients Whole

• lesale

lers rs, Dis istri ribu butors rs Ｒｅｇｕｌａｔｏｒｙ Authori

• ritie

ies

Registration/Surveillanc e Reimbursement (Insurance)

Generic ic Ｃｏｍｐａｎｉｅｓ

Patent Sys System Orig rigin inator

• r

Co Comp mpanie ies Ａｃａｄｅｍｉａ

9-2. Stakeholders and Measures by Industry

• Consultations and approaches with

Associations of Physicians, Pharmacists, Wholesalers, etc. are being made for better support, understanding and acceptance of generic medicines by JGA, Govt, Academia, etc.

• Participation in the Regional Fora of Generic

Promotion are in progress. They usually invite local physicians, pharmacists, health insurance fund administrators and other stakeholders.

26 Japan Generic Medicines Association

9-3. Stakeholders and Measures by Industry

• Publicity Activities: Lectures and interviews to Media
• Awareness Increase of the consumers / patients:

Ads by nationwide-circulation papers , TV Ads by several top generic manufacturers, major manufacturers’ websites, telephone consultation (PMDA also provide a similar services)

• Creating now generic IT network among member

companies to provide information to the medical professionals as well as consumers/patients

27 Japan Generic Medicines Association

9-4. Stakeholders and Measures by Industry

• Japan Society of Generic Medicines, an academic

society was established to promote the appropriate use of generics in April 2007 (renamed from former Generic Study Group established in 2003)

• Periodical Literature Surveys: have been made to see

if generic medicines, especially on the quality and clinical data, have any trouble and are studied legitimately and without any prejudice

• Feedback of all measures is being made to member

companies to improve their performance

28 Japan Generic Medicines Association

9-5. Stakeholders and Measures by Industry

• Further Emphasis in the future
• Physicians, for more cooperation
• Support revision of incentive system for

physicians and pharmacists to use more generics

• Health Insurance Funds, the payers to demand

increased use of generics

• Publicity Activities more towards Patient

groups especially for chronic diseases common among elderly people.

29 Japan Generic Medicines Association

30

10.Japanese Generic Market Players

Japan Generic Medicines Association

38.8 40.0 42.4 42.9

49.2 47.6 47.3 48.3 48.5 48.8 42.7 48.4 50.4 51.5 17.8 18.5 18.9 19.2 19.6 19.4 61.2 60.0 57.6 57.1 8.8 8.8 8.9 9.3 9.5 9.5 26.1 29.0 29.1 29.4 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08

Substitution Rate at NC Substitutable Scrips Rate Substitution Rate vs all

No Substitution Scrips Rate

10-2. Players: Dispensing Evolution at a Pharmacy Chain

New Scrip Format

%

31 Japan Generic Medicines Association

32

Merck Pharma (subsidiary of Mylan (USA)) : merged to Mylan Japan, recently ; manufacturing, importing, marketing Sandoz K.K. (subsidiary of Sandoz(Ger)): manufacturing, importing, marketing Teva (US-Israel) : establishment of subsidiary; recently established a joint venture with Kowa Co., Ltd. whose main business is OTC products.

10 10-3. Pl . Play ayers: : Move ve o

• f

f Foreig ign Co Compa panie ies ( (1)

Torrent (India) : closed its office recently

Japan Generic Medicines Association

Hospira Japan (subsidiary of Hospira(US)) Collaboration with Taiyo Yakuhin Lupin (India) Acquired majority of shares: Kyowa Pharmaceutical

Rambaxy (India) Collaboration : Nippon Chemiphar (including acquisition

• f 50% stock of Nihon Pharmaceutical Industry); the

parent company was acquired by Daiichi-Sankyo recently

10 10-3. Pl . Play ayers: : M Move ve o

• f

f Foreig ign Co Compa panie ies (2 (2)

Orchid (India): establishment of a subsidiary

33 Japan Generic Medicines Association

34

Aurobindo (India)：Subsidiary established January 2008 Aska-Actavis(Iceland) a joint venture (Aska 55% Actavis45%) to be established in April 2009 Zydus Pharma (India) ：acquired100% Share of Nippon Universal

10 10-3. Pl . Play ayers: : Mo Move ve of

• f F

Foreig ign Co Compa panie ies ( (3)

Japan Generic Medicines Association

10-4. Players: Generic Penetrations in Japan (1)

35 Japan Generic Medicines Association

10-4. Players: Expected Generic Penetrations (2)

36

Br Brand Name Generi ric Name Compan any 2009 Regis istra tration tion Estimate te Cravi vit levofl floxac xacin in Daiic ich-San ankyo kyo Fosamac/B ac/Bonalon lon alentrona tronate te sodiu ium Banyu yu(Merk)/ Merk)/Te Teij ijin in Casode dex bical alutam amide ide Astra ra-Zeneca Zeneca 2010 Regi gist stra ration ion Estimate ate Parie iet sodiu ium rabepra prazole le Eisai Luvox fluvox voxami amine maleate te Astell llas as Amary ryil il glime mepir piride ide Sanofi fi-Ave Aventis is 2011 Regist gistrat ration ion Estimate ate Actos piogli litaz azone hydrochloride rochloride Takeda da Lipitor atorva vastat tatin in calc lcium ium hydra rate te Astell llas as Progra raf tacroli rolimu mus Astell llas as Lulla lan pero rospir spirone hydrochloride rochloride Dainippon ippon-Sumit itomo mo Be Benet (Actonel) l) sodiu ium rise sedro dronate ate hydrate drate Takeda da 2011 Regi gist stra ration ion Estimate ate NU NU-LOT OTAN AN losar artan an potassi sium Banyu yu(Merk) Merk) Paxil paroxe xetine ine hydrochloride drochloride hydra drate te GSK Mysle lee zolpide dem m taltrate ate Astell llas as Seroqu quel quetia iapin pine fumar arate te Astell llas as Ａｌｌｅlｏｃｋ

• lopat

atad adine ine hydrochloride drochloride Kyowa wahakk akko-Kir Kirin in

source: Gekkan Generic July, 2009

Japan Generic Medicines Association

11．Future Prospects of the Industry : Process Integration

API Synthesis API Formulation Application/ Approval Marketing/Producti

• n/PMS

Synthesis Formulation Preclinicaｌ Studies Clinical Studies Application

Approval

Marketing/ Production / PMS

Generic Companies Main Functions Purchase from others 2) Original Medicines, R & D to Marketing Process

Above processes can be combined and/or

• utsourced

Horizontal Vertical Integration or Division of Labor Process

1) Generic Medicines, Formulation and Marketing

38

① Reorganization of the industry will be accelerated including innovative, generic and foreign capital companies, distributors, etc. ② Generic Sector will be polarized due to:

11-2．Future Prospects of the Industry

Application of more rigorous approval standards Required supply of full line-up of all approved specifications Responsibility to maintain Quality, provide Drug Information and keep Steady Supply. Users demand rigorously to check not only on quality but also appearance.

Japan Generic Medicines Association

11-3. Future Prospects of the Industry

Current Variation of Integrations 1) M&A within the Association members 2) Acquisitions by overseas competitors 3) Acquisitions by domestic original mfrs 4) Acquisitions by domestic trade companies & others 5)Contract manufacturing for original mfrs &

• ther generic mfrs.

Future Possibilities 1) Mega-mergers among Association members 2) Direct Penetration by originator manufacturers 3) Overseas Acquisition of API manufacturers

There are 44 member companies at JGA and 60 to 80 more independents producing generics.

39 Japan Generic Medicines Association

• 12. Market Entry Barriers + Stimulating Factors

Market Entry Barriers

1) Unfavorable Reimbursement System and a new reimbursement system being proposed by the originator product companies 2) Data Protection and Extension of Exclusivity by additional minor improvements with or without patent protection by the originator drug and possible introduction of patents by innovative dosage and administration method to already known products 3) Rigorous Review of new and partial change applications by PMDA 4) Required same Full Line-Up of all products registered by the originator 5) Appearance of Mega-Distributors with nation-wide network and market controlling power

40

Stimulating Factors

1) Government Support for the generics 2) DPC, Fixed Payment System, is now being spread allowing extra profit margins if hospitals operate efficiently 3) Biosimilar Guideline was issued in March 2009 4) New Data Network among generic manufacturers

40 Japan Generic Medicines Association

Thank you for your attention END

42 2/21/2014

Disclosure Notice This presentation may contain “forward-looking statements” within the

meaning of the Private Securities Litigation Reform Act of 1995 including statements about Schering-Plough’s business and prospects. Actual results may differ materially from these forward-looking

• statements. Schering-Plough does not assume the obligation to update

any forward-looking statement. For further details about risks and uncertainties that may affect forward- looking statements, see Schering-Plough’s SEC filings, including Part II, Item 1A, Risk Factors, in the Company’s second quarter 2008 10-Q. Additionally, during this presentation we may refer to non-GAAP measures including adjusted net sales and adjusted earnings per share. We define adjusted net sales as our GAAP net sales plus an assumed 50% sales contribution from our cholesterol joint venture. You should refer to the non-U.S. GAAP reconciliation tables on our Investor Relations website in the financial highlights section.

43

High-Performance Transformation

The Schering-Plough Experience

Ken Banta New York Pharma Forum September 10, 2009

44 2/21/2014

Key Takeaways

• It all starts with the assembling the right team of

people

• It requires developing an environment where people

are motivated to give their best

• Competent People, Aligned People, Passionate

People, Courageous People, Tenacious People – They can do together what cannot be done in conventional situations

• Such people can win together while having fun

together!

45

About Me

46

About Schering-Plough

47

A Dramatic Transformation

48 2/21/2014

Transforming the Top-Line

Added $12.2 Billion Dollars in Adjusted Net Sales

1 Assumes 50% of MSP JV Sales. Please refer to reconciliation tables on the Investor Relations section of our website.

$18.5 $8.3 2003 2008

GAAP Net Sales Adjusted Net Sales

$ billions $8.6

$10.2 increase in GAAP Sales $12.2 increase in Adjusted Net Sales1

$20.8

1

49 2/21/2014

Transforming the Product Portfolio

* Includes VYTORIN and ZETIA from the MSP JV

Products with over $1 Billion in Annual Sales 1

5*

2004

2008

50 2/21/2014

Transforming Global Markets

Geographic Expansion Strategy Unfolds

Newer Markets as a % of total sales

• Brazil
• Central & Eastern Europe
• Turkey
• Russia
• China
• India
• S. Korea
• Vietnam
• Pakistan

0% 2% 4% 6% 8% 10% 12%

2005 2005 2006 2006 2007 2007 2008 2008

51

Transforming Free Cash Flow

Free Cash Flow

FCF: Operating cash flow less dividends and capital expenditures

($ Millions)

• $940

$2,045

• $1,000
• $500

$0 $500 $1,000 $1,500

Full Year 2003 Full Year 2008

52 2/21/2014

2003 2009

5 12

Source: SGP Product Pipeline (August 2004 and April 2009)

Transforming Late-Stage Pipeline Growth

53 2/21/2014

2004:

Transformational Adjusted EPS Growth

54 2/21/2014

Transformational Adjusted EPS Growth

2008 2004

55

How Did We Make It Happen?

56 2/21/2014

The Transformation Formula

• Assemble the people
• Energize, Inspire, and Align the People…
• In a High Performance Culture…
• That delivers executional excellence

Strong organizational health helps drive the transformation

57 2/21/2014

• 23
• 11
• 9
• 9
• 7
• 6

1 4

• 30
• 20
• 10

10 20 30

Teamwork Customer Focus Quality Engagement Leadership Working Climate Competitiveness Communication

Center Line: Global Pharmaceutical Norm Comparison vs. Global Pharmaceutical Companies Norm

Schering-Plough Organizational Health: 2003

Ref: Global Colleague Survey 2006, Prepared by ISR.

58 2/21/2014

Schering-Plough Organizational Health: 2006

Comparison vs. Global Pharmaceutical Companies Norm

1 1 5 5 7 7 7 8 8 10 10 11 11 12 13 13

• 15 -10
• 5

5 10 15 Center Line: Global Pharmaceutical Companies Norm (N=75,558)

Values and Leader Behaviors Communication Performance Management Operating Efficiency Competitive Position Leadership Pay & Rewards Strategy & Direction Company Image Quality Colleague Engagement Professional Development Working Relationships Culture of Innovation Customer Focus Immediate Manager

Ref: Global Colleague Survey 2006, Prepared by ISR.

59

Our Formula For Transformation

60 2/21/2014

• 1. Create a “Roadmap”
• Effective roadmap creates a ‘story’ and a ‘journey’
• Gives a sense of hope and a future
• Builds alignment and common purpose

+

• Frames external perspectives – including investors,

business partners and other stakeholders Key Early Wins Get The Buy-In and the

Resolve Among the People

61 2/21/2014

S-P Experience: Creating a Roadmap

Action Agenda

New Thinking, New Capabilities, New Urgency

62 2/21/2014

• 2. Make It Matter
• Build a sense of shared higher purpose
• Focus the entire organization on customers and patients
• Reinforce a high performance way of working
• Make it “real” and get people engaged

63 2/21/2014

S-P Experience: Create A Sense of Purpose

Our Vision Statement:

To Earn Trust, Every Day.

We aspire to earn the trust of doctors, patients, customers and other stakeholders as a champion for them and as a company that provides them with a steady flow of science-based medicines and services. By earning trust, we will build growth. Example:

64 2/21/2014

• 3. Create a “How To” That Is

Modeled From The Top

• Set a clear and simple way of working that is mandated across the
• rganization
• Focus on elements that are ‘musts’ for achieving the organization’s

goals in an integrated global matrix

• Focus on corrective elements to change existing negative cultural

aspects into positives

• Give it urgency and priority by modeling from the top

65 2/21/2014

S-P Experience: Globally Integrated Business Model

66 2/21/2014

SP Experience: Leader Behaviors

• Shared accountability and transparency
• Cross-functional teamwork and collaboration
• Listening and learning
• Benchmarking and continuously improving
• Coaching and developing others
• Business integrity

These are not just words − we put them into action. Based on a winning attitude, it is our Leader Behaviors that will enable us to earn trust and drive long-term high performance. Our Leader Behaviors are:

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• 4. Engage and Align Through to the Front Lines
• Focus on creating a ‘small’ company in a ‘big’ company
• Engage front line managers and their people as a special

cadre linked directly to the CEO

• Intensely communicate strategy, direction and ‘why’

directly to all colleagues (v.s. rely just on ‘cascade’)

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S-P Experience: Engage and align through to the frontlines

CEO Front Line Managers & Their People Alignment With the Frontlines Translates into Powering the Execution

Executive Management Team

Operations Management Team

Global Leadership Team

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S-P Experience: Intensive Direct Two-Way CEO Communications

• CEO messages – email and video
• Dialogues
• ‘FredHassanDirect’
• Frontline Meetings
• Leadership by visibility and ‘creating the story’

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S-P Experience: Strategy:

Grow the Top Line Grow the R&D Pipeline Reduce Costs and Invest Wisely

• Keep it simple and steady
• Have only one strategy for everyone

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Help Unite and Align the People Around a Shared Way of Working

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Testing the Formula Again:

The Organon BioSciences Integration

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The Planned Combination with Merck

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Key Takeaways

• It all starts with the assembling the right team of

people

• It requires developing an environment where people

are motivated to give their best

• Competent People, Aligned People, Passionate

People, Courageous People, Tenacious People – They can do together what cannot be done in conventional situations

• Such people can win together while having fun

together!

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Discussion