Strategic Licensing in the Pharma Industry: A Roadmap to Success

1. Licensing and Corporate Partnering… “Pharma-style” Jim Schaeffer Executive Director Worldwide Licensing and External Research April 10, 2013 The University of Texas at Austin 1

2. Pharma at a Glance • Big Pharma is BIG • Patent expiries are inevitable • Growth requires multiple blockbusters/year • (blockbusters are hard to come by) • Generics are growing • FDA is “challenging” • Fewer and fewer companies • Emerging markets are emerging • Most of the research is performed exPharma • Licensing-in is important but not a panacea

3. Largest Pharma in 2010 (prescription sales–$Bn) Pfizer (Wyeth) $ 47.1 (6.0%) Merck (SP) 46.3 (5.9) Novartis 46.0 (5.9) Roche (Genentech) 43.9 (5.6) Sanofi-Aventis 38.9 (5.0) GlaxoSmithKline 38.7 (4.9) Abbott Labs 26.1 (3.3) Johnson & Johnson 24.6 (3.2) AstraZeneca 22.1 (2.8) Teva Pharmaceutical 20.8 (2.7)

4. Patent Expiries (Sales at Risk) 2010 28 ($Bn) 2011 52 2012 50 2013 33 2014 48 2015 51 2016 33

5. FDA Approvals 2010 21* 2009 25 2008 24 2007 18 2006 22 2005 20 2004 38 *1 from JNJ, NVS, SNY, ROC *0 fromMRK, PFE, GSK, LLY, AZ, BMS

6. 60 50 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 40 30 20 10 0 New Analysis Provides Cautionary Tale Cumulative NMEs by Selected Company Since 1950 Conclusions from the analysis: • Productivity has been constant for 60 years. • For each company, productivity is constant and stochastic. • Cost/NME has been rising at a CAGR of 13% since the 1950s. • Only 1 in 5 NMEs becomes a blockbuster. Cumulative Number of NMEs Merck Lilly Roche Source: Nature Reviews Drug Discovery, December 2009, p959-968

7. Few Pharma = Fewer Customers 7

8. Pharma is Looking to “Enhance the Pipeline” • Pursuing fewer therapeutic targets • Less sites and increased out-sourcing • More sites • Mergers • Acquisitions • Increased academic relationships • Investing in “incubators” • Expanding in emerging markets • Venture funds (strategic, managed, independent) • CEDs and CEEDs • FIPCO → FIPNET • Licensing (early/late stage)

9. The Solution for All Pipeline Woes “Let’s In-License a Late-Stage Blockbuster!!” Pharma CEO in years gone by 9

10. Licensing within the Pharma Industry • Costly • License: • Early stage (single-digit MM) • Late stage (100s MM) • Development costs • Acquisition (don’t ask) • Low POS • Time to success (or failure) requires patience • Requires co-dependence on entrepreneurs/venture community and pharma/big biotech

11. Merck Leads the Field in Biotech Partnering *Used with permission from Deloitte Recap 11

12. Merck Licensing Strategy Results in High-Value Alliances Approximately 63% of Merck’s 2009 revenue* was attributable to alliance products and patents • COZAAR / HYZAAR • FOSAMAX • GARDASIL • ZETIA / VYTORIN • NEXIUM • VARIVAX • ROTATEQ • ZOSTAVAX Licensed Products or Patents: 63% of total sales * Includes 12 months of Merck human health revenue, 2 months of legacy human health Schering-Plough revenue, 50% of full year JV revenue (Sanofi-Pasteur MSD, Johnson&JohnsonoMerck) and 10 months of Merck/Schering-Plough revenue.

13. We Constantly Scan for Partnering Opportunities Key acquisitions & alliances signed 52 Confidentiality-In agreements 697 Opportunities reviewed at RLC 1290 Opportunities received 8672 2011 13

14. Disease Area Priorities • Asthma • Atherosclerosis • Diabetes • Hepatitis C virus (HCV) • Human immunodeficiency virus (HIV) • Rheumatoid arthritis • Vaccines • Alzheimer’s disease • Cancer • Specialty hypertension • Thrombosis 14

15. Overview of Merck’s Licensing Process Connecting with You UnderstandingYour Science WorkingTogether Doing the Deal • Worldwide scouts build relationships and seek out opportunities • Non-confidential information submitted for review • Initial non-confidential review by Review andLicensing Committees • Confidentiality disclosure agreement signed • Confidential review • Face-to-face scientific meetings • Commercial assessment • Term sheet negotiations conducted by Transaction Manager • Due diligence • Definitive agreements negotiated • Agreements executed • Alliance Management • Alliance managers assigned • Alliance launched • Monitor progress through-out the agreement • Basic Research Collaboration Implementation • Senior scientists dedicated to successful execution of the research collaboration 15

16. New & Expanded Areas of Interest for Partnering • Merck publishes our Areas of Interest twice each year. • For each of our therapeutic areas, we list the Mechanism of Actions that we are interested in and those that we are not. • Late-stage clinical compounds (phase 3-ready & beyond) are of interest in any therapeutic area. • Visit us at:www.merck.com/licensingto learn more! 16