Twenty-Third Annual General Assembly Creative Investments and - - PowerPoint PPT Presentation

Twenty-Third Annual General Assembly

Creative Investments and Partnerships to Stimulate Innovation

Friday, December 7, 2012 3:00 – 5:30 pm

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New York, NY December 7, 2012

New York Pharma Forum

23rd Annual General Assembly

James Greenwood President & CEO BIO

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

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Creative Investments and Partnerships to Stimulate Innovation

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

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Academic/Discovery Biotech (VC/IPO) Pharma (Buys them)

Early-Stage Late-Stage/Marketing/Sales Mid-/Late-Stage

Traditional Model: Development of academic discovery financed by private sector (biotechs) and then handed over to Pharma

Is the traditional model broken?

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

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Challenges to innovation

Intellectual Property Reimbursement Regulatory Access to capital

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

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Source: NVCA/PwC, November 7th, 2012

Annual VC funding

6

37 48

17 17 15

10 20 30 40 50 60 2002-1 2002-3 2003-1 2003-3 2004-1 2004-3 2005-1 2005-3 2006-1 2006-3 2007-1 2007-3 2008-1 2008-3 2009-1 2009-3 2010-1 2010-3 2011-1 2011-3 2012-1 2012-3

# First Round Deals

Source: NVCA/PwC, November 7th, 2012

U.S. venture investment in biotechnology – 1st round deals

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

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Venture investment shifting away from Biopharma and Medical Devices

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

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Venture capital investment moving away from biotech innovation

Past 3 Years Change in Biopharma Investment Next 3 Years Expected Change in Biopharma Investment

14% 41%

Decreased Increased % of Respondents

15% 40%

Decreased Increased % of Respondents

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Fewer VC firms investing in biotech

1 0

U.S. Biotech IPOs by year

Source: E&Y

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 1

Less than 10% of pre-phase II candidates will ever reach market

350M 100M 170M 370M 70M 240M

Estimated 35 to 40% of R&D cost is pre-phase II

Discovery/ preclinical Phase I Phase II Phase III Approval Other/ Phase IV

Source: Pharmaceutical Research and Manufacturers of America

Proof of concept

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 2

New drug approvals not keeping pace with R&D spending

Pharma R&D Spending vs. NMEs Approved

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 3

Risk-averse FDA (and Congress) Longer drug development times Clinical trials – take longer – more complex – more expensive Lack of transparency, predictability Regulatory science has not kept up FDA funding – resources and staffing

Regulatory issues

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 4

A 21st Century FDA (TREAT Act)

Elevating FDA and Empowering Operational Excellence

• FDA mission statement
• Management Review Board

Advancing Regulatory Science and Innovation

• Chief Innovation Director
• Enhancing access to external scientific and medical expertise

Enabling Modernized Patient-Centric Clinical Development

• Modernizing and expanding the Accelerated Approval pathway
• Electronic health records and FDA Clinical Informatics Coordinator
• Disclosure to drug sponsors of reasons for non-approval

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 5

R&D partnership structures Net operating loss reform Capital gains rate reform for small biotechs Faster cost recovery for intangible assets (accelerated amortization) Incentives for repatriated investments Expand Therapeutic Discovery Project program

Clearing the path for investment in innovation

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 6

Governments want healthcare savings Industry-wide price cuts Mandatory pricing systems and rebates Imports of drugs from lower-cost countries Shifting patient burden with higher co-payments Generic substitution IPAB Comparative Effectiveness

Reimbursement issues

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 7

Drug industry is a target for deficit proposals

Reduce payment to physicians for Part B drugs Require industry to pay rebates on Medicare Part D beneficiaries Prohibit patent settlement practices Allow the gov’t to negotiate Part D Drug Prices Reduce exclusivity for innovator biologics Expand 340B drug discount program Apply LCA policies to Part B drugs Restructure cost sharing for low income Medicare beneficiaries Reclassify certain Part B drugs to Part D

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 8

Intellectual Property challenges

US top court to rule if companies can patent genes

WASHINGTON — The US Supreme Court said Friday it would examine whether companies should be able to patent human genes they have isolated and identified, a decision that could have far- reaching implications for genetic research.

“The advantages of collaboration are greater network involvement in problem solving and testing, a reduction in transaction costs to acquire new knowledge, and a reduction in licensing costs when firms can access knowledge produced by the collaborative network at low or no cost.”

The Bioeconomy to 2030: Designing a Policy Agenda OECD study

Creative collaboration(s)

2 0

Co-opetition: a new model for R&D

• Eli Lilly, Merck, and Pfizer form not-for-profit to focus on cancer research
• Asian Cancer Research Group focuses on most commonly diagnosed

cancers in Asia

• Pooled resources to bring down the cost for innovative treatments

2 1

Creating value through R&D efficiency

10 pharma companies collaborate to solve common drug development challenges and increase R&D efficiency:

2 2

Academic discovery alliances

2 3

Filling funding gaps: private, philanthropy, patient advocacy

Disease focused groups step in while VC funding moves to later stages.

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

2 4

Federal government takes larger role in early stage drug R&D NIH Programs

– National Center for Advancing Translational Sciences (NCATS) – Cures Acceleration Network (CAN)

Increased federal role in translational research

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

2 5

Tadataka ( Tachi) Yam ada, M.D., Executive Vice President and Board Member, Chief Medical & Scientific Officer, Takeda Pharmaceuticals Alan Paau, CLP, MBA, PhD, Vice Provost, Cornell University President, Cornell Research Foundation, Inc.; Executive Director, Cornell Center for Technology Enterprise and Commercialization Ann Li, Executive VP, Business Development, New York City Economic Development Corporation Greg W iederrecht, Ph.D., Vice President & Head of External Scientific Affairs, Worldwide Licensing & Acquisitions, Merck & Co.,Inc. Jam es Greenw ood ( m oderator) , President & CEO, Biotechnology Industry Organization

Our panel

• Dr. Tadataka Yamada

Executive Vice President and Board Member Chief Medical & Scientific Officer Takeda Pharmaceuticals

1

New York, NY December 7, 2012

New York Pharma Forum

23rd Annual General Assembly

James Greenwood President & CEO BIO

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

2

Creative Investments and Partnerships to Stimulate Innovation

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

3

Academic/Discovery Biotech (VC/IPO) Pharma (Buys them)

Early-Stage Late-Stage/Marketing/Sales Mid-/Late-Stage

Traditional Model: Development of academic discovery financed by private sector (biotechs) and then handed over to Pharma

Is the traditional model broken?

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

4

Challenges to innovation

Intellectual Property Reimbursement Regulatory Access to capital

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

5

Source: NVCA/PwC, November 7th, 2012

Annual VC funding

6

37 48

17 17 15

10 20 30 40 50 60 2002-1 2002-3 2003-1 2003-3 2004-1 2004-3 2005-1 2005-3 2006-1 2006-3 2007-1 2007-3 2008-1 2008-3 2009-1 2009-3 2010-1 2010-3 2011-1 2011-3 2012-1 2012-3

# First Round Deals

Source: NVCA/PwC, November 7th, 2012

U.S. venture investment in biotechnology – 1st round deals

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

7

Venture investment shifting away from Biopharma and Medical Devices

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

8

Venture capital investment moving away from biotech innovation

Past 3 Years Change in Biopharma Investment Next 3 Years Expected Change in Biopharma Investment

14% 41%

Decreased Increased % of Respondents

15% 40%

Decreased Increased % of Respondents

9

Fewer VC firms investing in biotech

1 0

U.S. Biotech IPOs by year

Source: E&Y

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 1

Less than 10% of pre-phase II candidates will ever reach market

350M 100M 170M 370M 70M 240M

Estimated 35 to 40% of R&D cost is pre-phase II

Discovery/ preclinical Phase I Phase II Phase III Approval Other/ Phase IV

Source: Pharmaceutical Research and Manufacturers of America

Proof of concept

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 2

New drug approvals not keeping pace with R&D spending

Pharma R&D Spending vs. NMEs Approved

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 3

Risk-averse FDA (and Congress) Longer drug development times Clinical trials – take longer – more complex – more expensive Lack of transparency, predictability Regulatory science has not kept up FDA funding – resources and staffing

Regulatory issues

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 4

A 21st Century FDA (TREAT Act)

Elevating FDA and Empowering Operational Excellence

• FDA mission statement
• Management Review Board

Advancing Regulatory Science and Innovation

• Chief Innovation Director
• Enhancing access to external scientific and medical expertise

Enabling Modernized Patient-Centric Clinical Development

• Modernizing and expanding the Accelerated Approval pathway
• Electronic health records and FDA Clinical Informatics Coordinator
• Disclosure to drug sponsors of reasons for non-approval

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 5

R&D partnership structures Net operating loss reform Capital gains rate reform for small biotechs Faster cost recovery for intangible assets (accelerated amortization) Incentives for repatriated investments Expand Therapeutic Discovery Project program

Clearing the path for investment in innovation

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 6

Governments want healthcare savings Industry-wide price cuts Mandatory pricing systems and rebates Imports of drugs from lower-cost countries Shifting patient burden with higher co-payments Generic substitution IPAB Comparative Effectiveness

Reimbursement issues

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 7

Drug industry is a target for deficit proposals

Reduce payment to physicians for Part B drugs Require industry to pay rebates on Medicare Part D beneficiaries Prohibit patent settlement practices Allow the gov’t to negotiate Part D Drug Prices Reduce exclusivity for innovator biologics Expand 340B drug discount program Apply LCA policies to Part B drugs Restructure cost sharing for low income Medicare beneficiaries Reclassify certain Part B drugs to Part D

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

1 8

Intellectual Property challenges

US top court to rule if companies can patent genes

WASHINGTON — The US Supreme Court said Friday it would examine whether companies should be able to patent human genes they have isolated and identified, a decision that could have far- reaching implications for genetic research.

“The advantages of collaboration are greater network involvement in problem solving and testing, a reduction in transaction costs to acquire new knowledge, and a reduction in licensing costs when firms can access knowledge produced by the collaborative network at low or no cost.”

The Bioeconomy to 2030: Designing a Policy Agenda OECD study

Creative collaboration(s)

2 0

Co-opetition: a new model for R&D

• Eli Lilly, Merck, and Pfizer form not-for-profit to focus on cancer research
• Asian Cancer Research Group focuses on most commonly diagnosed

cancers in Asia

• Pooled resources to bring down the cost for innovative treatments

2 1

Creating value through R&D efficiency

10 pharma companies collaborate to solve common drug development challenges and increase R&D efficiency:

2 2

Academic discovery alliances

2 3

Filling funding gaps: private, philanthropy, patient advocacy

Disease focused groups step in while VC funding moves to later stages.

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

2 4

Federal government takes larger role in early stage drug R&D NIH Programs

– National Center for Advancing Translational Sciences (NCATS) – Cures Acceleration Network (CAN)

Increased federal role in translational research

BI OTECHNOLOGY I NDUSTRY ORGANI ZATI ON

2 5

Tadataka ( Tachi) Yam ada, M.D., Executive Vice President and Board Member, Chief Medical & Scientific Officer, Takeda Pharmaceuticals Alan Paau, CLP, MBA, PhD, Vice Provost, Cornell University President, Cornell Research Foundation, Inc.; Executive Director, Cornell Center for Technology Enterprise and Commercialization Ann Li, Executive VP, Business Development, New York City Economic Development Corporation Greg W iederrecht, Ph.D., Vice President & Head of External Scientific Affairs, Worldwide Licensing & Acquisitions, Merck & Co.,Inc. Jam es Greenw ood ( m oderator) , President & CEO, Biotechnology Industry Organization

Our panel

New York Pharma Forum December 7, 2012

Bio (Eds & Meds) NYC 2020

To encourage economic growth in each of the five boroughs of New York City by strengthening the City's competitive position and facilitating investments that build capacity, generate prosperity, and catalyze the economic vibrancy of City life as a whole. Key NYCEDC functions:

• Strategic initiatives

– Applied Sciences NYC

• Industry‐specific initiatives

– Media and Tech (e.g., BigApps) – Biosciences – Fashion (e.g., Design‐ Entrepreneurs NYC) – Financial Services – Green Technology – Industrial NYCEDC Mission:

NYCEDC Overview

Leverages City assets to drive growth, create jobs, and improve quality of life

Center for Economic Transformation:

Real Estate Management Investment Center for Economic Transformation (CET) Real Estate Development

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NYC has significant assets and growth opportunities

NYC has an unprecedented leadership opportunity to leverage its assets and build a vibrant home for top‐tier researchers, entrepreneurs and investors in the life sciences

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CONFIDENTIAL

Academic Research Philanthropy Biopharma Industry Capital & Finance

• 9 major academic research centers
• $1.4B annual NIH funding
• 20 FDA‐approved drugs discovered at

NYC AMCs

• Cross‐institutional

partnerships

• Translational research

capabilities Assets Opportunity for NYC

• >100 life sciences VC &

private equity firms

• Growing investor awareness of

NYC as center of innovation

• Robust funding environment
• Top‐tier deal flow
• Alternative investment models

Assets Opportunity for NYC

• >100 medical research

foundations

• Large donor community
• >15 venture philanthropies

funding life sciences startups

• Research initiatives with

disease‐specific patient networks Assets Opportunity for NYC

• Local presence of >10

large pharma companies

• >77K metro area jobs
• Sponsored research with

academia

• Dense pool of top‐tier

R&D talent

• Robust infrastructure

Assets Opportunity for NYC

12/6/2012 12:18 PM

NYC is #2 Recipient of NIH Funding

With 6% of annual NIH funding, NYC has a significant position in academic life sciences research

Allocation of NIH funding across top 8 NYC institutions* % of ‘09 NIH funding

Total NYC Share

* Also includes NIH funding through American Recovery and Reinvestment Act; does not include Hospital for Special Surgery Source: NIH Reporter; 2008 AUTM Licensing Survey

6%

Academic & Medical Research Centers Biopharma Companies Research Foundations and Non‐Profits Venture Capital Digital Health and MedTech Biomedical Engineering Programs

Significant Stakeholder Base

We have engaged academics, CEOs and investors across the Eds & Meds sector

NOTE: Not comprehensive and includes only a selection of organizations.

Low Location Quotient in Commercial Bio

Despite significant growth in the sector, commercial bioscience remains under‐represented in NYC

‐ 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 New York City Boston/Cambridge Boston/Cambridge

Employment across the commercial biomedical sector for New York City and Boston/Cambridge*

NYC Total U.S. 1.0M 1.3M 3.1 0.3 Location Quotient

NOTE: Location quotient refers to relative density of employment base (i.e., share of local workforce in commercial biomedical sector compared to share of U.S. workforce in sector) * Biomedical sector includes: (a) Pharma/Medicine Manufacturing; (b) Medical Equipment & Supplies Manufacturing; (c) R&D in Biotechnology, Engineering and Life Sciences; (d) Medical & Diagnostic Laboratories. Source: NY State Department of Labor; BLS.

PRELIMINARY

Existing Initiatives

EDC is currently pursuing a number of initiatives to strengthen NYC’s infrastructure and invest in the next generation of talent

Applied Sciences Alexandria Center for Life Science ‐ NYC BioBAT in Partnership with SUNY Downstate New York Genome Center SBIR Workshops Effort to solicit universities, institutions or consortia from around the world to build a state‐of‐the‐art engineering and applied sciences campus in New York City in exchange for access to City‐owned land New commercial life science research park facility located along Manhattan’s East Side Medical Corridor, offering 1.1 million square feet

• f Class A laboratory and office space when completed – Pfizer, Kadmon,

Lilly/ImClone. Roche in tower two. Commercial life science research park facility located in the Brooklyn Army Terminal in Sunset Park, offering over 500K square feet of lab and

• ffice space when completed

Support for multi‐institutional effort by NYC AMCs to build shared next‐ generation resources in genomics and bioinformatics Exclusive, full‐day workshops to help New York City‐based biotechnology companies access the more than $2 billion in Federal SBIR funding available for research and development annually

Vision & Goals for Eds & Meds in NYC in 2020

NYC is launching a portfolio of entrepreneurial initiatives to build a vibrant ecosystem for venture creation in the life sciences and healthcare technology sectors

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Space Grow existing infrastructure and wet‐lab space for commercial life sciences companies

• f all stages; encourage early‐stage companies to seed in NYC through the creation of

small‐footprint, low‐cost wet‐lab space Funding Create robust funding environment for early‐stage life sciences and healthcare technology companies and draw additional NIH funding for high‐priority areas of research Partners & Collaborations Leverage academic research and translation to improve human health through institutional and cross‐sector collaborations; assist healthcare technology companies in partnering with healthcare delivery organizations Human Capital Grow the existing talent base and drive job creation through programming that teaches business skills and encourages entrepreneurial development

Large Pharma R&D: The Road Ahead in Early Stage Research

Greg Wiederrecht, PhD CLP Vice President and Head External Scientific Affairs Worldwide Licensing & Acquisitions Merck & Co., Inc.

New York Pharma Forum December 7, 2012

We're committed to bringing the same level of innovation to our patients in the future as we have in the past

1963: Measles vaccine introduced by MSD. 1995: COZAAR launched as the first angiotensin II receptor antagonist used to treat hypertension. 2011: VICTRELIS is first of a new generation of oral hepatitis C drugs that increase the cure rate while shortening the time required for treatment. 2006: GARDASIL launched as the first vaccine specifically designed to prevent cancer – protects against most cervical cancers caused by HPV.

2

3

Pharma R&D is full of optimists!

“Indeed, drug research is quite possibly the least efficient endeavor in the world of business. It’s the equivalent of hiring thousands of art students and funding decades of work in hopes that once in a while

• ne will paint a ‘Mona Lisa’.”
• -John Simons, Fortune Magazine

99.9% of compounds wash out of the development pipeline!

4

We can’t get there alone: We need a combination of high-level Internal and External R&D

MSD will:

• Ensure exceptionally strong internal research

and marketing capabilities

• Leverage this capability through collaborations

−Openly collaborating with the best partners −Continually evaluating potential transactions

4

The future success of our industry will depend

• n how successfully we can build alliances

and collaborate today. Kenneth Frazier MSD’s Chairman, President & CEO

5

Licensed Products

• r Patents:

55% of revenue

Approximately 55% of MSD’s 2011 human health revenue is attributable to alliance products and patents

*Method of use patent Revenue includes 50% of full year JV revenue (Sanofi-Pasteur MSD and J&J/Merck)

• JANUVIA / JANUMET*
• ZETIA / VYTORIN
• COZAAR / HYZAAR
• FOSAMAX
• REMICADE
• GARDASIL
• TEMODAR
• VARIVAX
• ZOSTAVAX

Partnerships are Key to our Success

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MSD Pipeline July 27, 2012

Phase II Phase II Phase III Phase III Allergy, Immunotherapy 1 MK-8237 Hepatitis C MK-5172 Allergy, Grass Pollen 1 MK-7243 Hepatitis C vaniprevir, MK-7009 5 Cancer dalotuzumab, MK-0646 Insomnia MK-3697 Allergy, Ragweed 1 MK-3641 Herpes Zoster Inactivated VZV vaccine, V212 Cancer MK-1775 Insomnia MK-6096 Atherosclerosis MK-0524A (US) HPV-related cancers, V503 HPV vaccine (9 valent) Cancer MK-2206 Migraine MK-1602 Atherosclerosis MK-0524B 2 Insomnia suvorexant, MK-4305 Cancer dinaciclib, MK-7965 Overactive Bladder MK-4618 Atherosclerosis anacetrapib, MK-0859 Neuromuscular blockade reversal BRIDION, MK-8616 (US) Contraception, Medicated IUS MK-8342 Pneumoconjugate vaccine V114 Atrial Fibrillation vernakalant i.v., MK-6621 3 (US) Osteoporosis

• danacatib, MK-0822

Diabetes Mellitus MK-3102 Psoriasis MK-3222 Clostridium difficile Infection actoxumab/bezlotoxumab, MK-3415A Parkinson’s Disease preladenant, MK-3814 Rheumatoid Arthritis MK-8457 Contraception NOMAC E2 MK-8175A (US) 4 Pediatric hexavalent combination vaccine, V419 Diabetes and atherosclerosis sitagliptin/atorvastatin, MK-0431E Platinum-resistant ovarian cancer, vintafolide MK-8109 Fertility, corifollitropin alfa for injection, MK-8962 (US) Thrombosis vorapaxar, MK-5348

• 1. North American rights only.
• 2. In July 2012, Merck placed the MK-0524B program on hold .
• 3. The program remains on hold in the U.S. The Company plans to have further

discussions with the FDA.

• 4. In November 2011, Merck received a Complete Response Letter from the FDA for

NOMAC/E2 (MK-8175A). The Company is planning to conduct an additional clinical study requested by the FDA and update the application in the future.

• 5. For development in Japan only.

Moved forward since last pipeline update.

7

Phase II Phase II Phase III Phase III Allergy, Immunotherapy 1 MK-8237 Hepatitis C MK-5172 Allergy, Grass Pollen 1 MK-7243 Hepatitis C vaniprevir, MK-7009 5 Cancer dalotuzumab, MK-0646 Insomnia MK-3697 Allergy, Ragweed 1 MK-3641 Herpes Zoster Inactivated VZV vaccine, V212 Cancer MK-1775 Insomnia MK-6096 Atherosclerosis MK-0524A (US) HPV-related cancers, V503 HPV vaccine (9 valent) Cancer MK-2206 Migraine MK-1602 Atherosclerosis MK-0524B 2 Insomnia suvorexant, MK-4305 Cancer dinaciclib, MK-7965 Overactive Bladder MK-4618 Atherosclerosis anacetrapib, MK-0859 Neuromuscular blockade reversal BRIDION, MK-8616 (US) Contraception, Medicated IUS MK-8342 Pneumoconjugate vaccine V114 Atrial Fibrillation vernakalant i.v., MK-6621 3 (US) Osteoporosis

• danacatib, MK-0822

Diabetes Mellitus MK-3102 Psoriasis MK-3222 Clostridium difficile Infection actoxumab/bezlotoxumab, MK-3415A Parkinson’s Disease preladenant, MK-3814 Rheumatoid Arthritis MK-8457 Contraception NOMAC E2 MK-8175A (US) 4 Pediatric hexavalent combination vaccine, V419 Diabetes and atherosclerosis sitagliptin/atorvastatin, MK-0431E Platinum-resistant ovarian cancer, vintafolide MK-8109 Fertility, corifollitropin alfa for injection, MK-8962 (US) Thrombosis vorapaxar, MK-5348

• 1. North American rights only.
• 2. In July 2012, Merck placed the MK-0524B program on hold .
• 3. The program remains on hold in the U.S. The Company plans to have further

discussions with the FDA.

• 4. In November 2011, Merck received a Complete Response Letter from the FDA for

NOMAC/E2 (MK-8175A). The Company is planning to conduct an additional clinical study requested by the FDA and update the application in the future.

• 5. For development in Japan only.

Moved forward since last pipeline update.

Licensing’s Contribution to MSD’s Pipeline

Pipeline as of July 27, 2012

= Licensed

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Scientific Engagement is Key

Large Pharma needs Innovative Partners

• Novel research aligning with existing areas of focus
• New disease areas or technologies

Large Pharma can offer Expertise & Experience

• Medical need – Requirements for differentiation
• Scientific and technical know-how
• Discovery, Translational, Preclinical
• Clinical Research – Biomarkers, Outcomes
• Manufacturing – chemicals, biologics, RNAi
• Global regulatory and reimbursement landscape
• Competition and market realities

9

Many different ways to leverage our strengths with those of our colleagues (and competitors…)

– Licensing – Research & Development Partnerships – Academic Collaborations – Pre-Competitive Collaborations – Consortia – Regional Commercial Deals – Joint Ventures – M&A – Venture Capital Funds

9

Sourcing and Delivering Innovation for Patients and Shareholders…

10

Appealing features of Academic Collaborations

• New targets from academic basic research
• Platform technologies
• Expert insights and consultation
• ‘Ear to the track’ for new opportunities
• Shift academic culture’s ‘center of gravity’ toward translational research
• Promote understanding of the challenges of discovering and developing

innovative drugs for unmet medical needs

• Career opportunities/recruitment for trainees

11

MSD Welcomes Academic Partnerships!

Of the Top 20 Large Pharma/Academic Deals of 2012 highlighted by Fierce Biotech, MSD was partnered in four -- the most active large Pharma

• ~30% of the highly significant licensing deals that MSD signed in

2011 were with Academic Institutions

• MSD is mindful of the university’s mission and
• bligations
• - We will not try to ‘force-fit’ a structure

that conflicts with university policy

• - Open to exploring additional vehicles for

“exceptional opportunities”

12

Calibr is a new independent, not-for-profit organization established

to accelerate the translation of basic biomedical research to innovative new medicines to treat disease. – Calibr is led by Peter G. Schultz, Ph.D., a world-renowned chemist, biotechnology entrepreneur and professor of chemistry at The Scripps Research Institute in San Diego. – Mission is to shorten timelines from academic discovery to commercial development, facilitate collaborations with academic partners, leverage the expertise/resources of academic labs. – In addition to MSD funding there will be financial support from federal, foundation and philanthropic funding.

California Institute for Biomedical Research

External Research Initiative

13

Calibr- Distinct from other Pharma forays into Academic Space

• Sourcing innovation is not geographically restricted

– Recruit ideas from anywhere

• Attractive to entrepreneurs

– Provides access to HTS/MedChem – Supports and advances basic/preclinical projects – An alternative to VC funding

• Operationally efficient

– Predefined work plans – Projects will advance or spin-out and not remain beyond animal POC – Both the Institute and entrepreneurs are focused on drug discovery – Advancing ‘projects’, not ‘newcos’ – Experienced, in-house staff

MSD’s need for Early Space and Academic Collaborations: MINT (Merck/MSD Initiative for New Targets)

• Inadequate number of projects in the target validation space

from internal target discovery initiatives and external ideas

• Industry wide problem
• Clear need to better leverage academic science in the

early space

PCCs

Target Validation

Lead ID

Lead Identification 1.5 years Target Validation >1 years

Prioritized Target Portfolio

Lead ID Starts

Lead Op

Lead Op Starts

Lead Optimization (Novel + Backup) 2 yrs (N) + 1 yr (ea. BU)

Ideas emerging from internal efforts academia/ biotech

Disease Area Prioritization

External Research Initiative

14

MINT Implementation Vision: Expand, Enable and Execute

• Expand our network of collaborative relationships with

innovators and subject matter experts to mature targets externally and internalize novel targets and/or tools and technologies.

– Selective Outreach – Requests for proposals

• Enable collaborators to translate high-potential research

finding by providing access to Merck assets and know-how.

– Tools for Targets – Funding and MRL scientist expertise

• Execute all stages of collaborative relationships more rapidly

and efficiently.

– Work plans, contracts and agreements – Monitoring progress against collaboration objectives

16

Merck/MSD Research Ventures Fund (MRVF)

• Cultivating external assets that are strategically aligned

with MSD for future partnership or acquisition

• Providing entrée into new disease areas or technologies
• Generating a positive financial return for MSD

MRVF will augment MSD’s early-stage pipeline and provide a positive financial return on invested capital. Venture investing complements MSD’s ongoing in-licensing, collaborations, & acquisitions activity by: External Research Initiative

17

MRVF has two components

Joint Investment Funding (JIF) – LP investments in geographically dispersed external VC funds; Merck is the sole pharma strategic limited partner in each. Direct Investment Funding (DIF) – minority equity investments in biotech companies including formation of new startups. MRVF will participate in first-round and follow-on rounds but does not intend to lead investments.

18

Large Pharma must seek transformative science – through every stage of development

Technologies Clinical Stage Partnership Discovery & Preclinical

Yamasa (July 2012)

• Yamasa and MSD partner on a

novel nucleoside reverse transcriptase inhibitor showing antiviral activity toward highly resistant HIV strains in preclinical

• studies. Yamasa retains an option to

co-develop and co-market any products in Japan.

• The candidate was discovered in

collaboration with a group led by world renowned scientist Dr. Hiroaki Mistuya of Kumamoto University’s Center for AIDS Research.

Endocyte (April 2012)

• Endocyte and MSD to develop

and commercialize vintafolide, Endocyte’s novel investigational therapeutic candidate. Vintafolide is currently being evaluated in a Phase III clinical trial for platinum-resistant ovarian cancer and a Phase II trial for non-small cell lung cancer.

• Both studies use Endocyte's

investigational companion diagnostic, etarfolatide (EC20) – a potential advance in personalized medicine.

18

Ambrx (June 2012)

• Ambrx and MSD to design and

develop rationally optimized biologic drug conjugates based

• n Ambrx’s site-specific protein

medicinal chemistry technology.

• The technology has the

potential to provide the foundation for a new family of biologic drug conjugates that selectively deliver small molecules to their site of action.

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Recap: Strategy changes have strengthened MSD Licensing & Acquisitions program

• Completely agnostic as to where we seek great science –

From academia through to company acquisitions (entire value chain)

• Real-time use of senior MSD committees –

“We deal in time as well as molecules”

• Leverage internal science to inform licensing/acquisition decisions –

Discovery Heads working closely with Licensing & Knowledge Management and Global Scientific Strategy fully integrated in discussions/decisions

• Utilization of our venture fund for finding innovation –

Through the Merck Research Venture Fund we have the right of “first look” and opportunity to provide scientific guidance to VCs and companies