Europe's Potential for Biopharmaceutical R&D

1. Europe: An attractive place for biopharmaceutical R&D? Seville – 4 March 2010 Elmar Schnee President of Merck Serono General Partner and Member of the Executive Board Merck KGaA

2. Content • Introduction to Merck Serono • Overview of Europe’s R&D pharma industry • Challenges to R&D productivity and investment • Europe as a favourable environment for R&D • Recommendations

3. Introduction to Merck SeronoThe biopharmaceutical division of Merck KGA • Oldest pharma company in the world • Headquarters: Geneva, Switzerland • 17,500 employees • Annual R&D budget of Euro 1.3 billion (23% of turnover) • Focus on unmet medical needs: • Oncology: Targeted cancer therapies • Neurodegenerative diseases: Multiple sclerosis and Parkinson’s disease • Autoimmune and inflammatory diseases: e.g. rheumatology, osteoarthritis, etc. • Fertility:Leading innovation with new embryology technologies and solutions to improve pregnancy rates • Endocrinology:Growth hormone and targeted indications

4. Spain, a key playerFacts and Figures • Since 1924. • Three working sites. • 1.000 employees. • Spain, Top 5 European sites in the Group. • More than 388 million euros sales in 2008. • More than 125 marketed products. • Euro 55 million export in 2009 Mollet del Vallès (Barcelona) With three production plants and a thousand employees, Spain ranks among the five key European countries in the Group. Maria de Molina (Madrid) Tres Cantos (Madrid)

5. Spain, a key playerProduction Plants • Biotech production plant (Tres Cantos - Madrid) • Manufacturing capacity to cover worldwide needs for r-FSH and r-hGH • Investment (2008): 1.092 K€ • Active participation in R&D projects • 1 of 3 biotech plant in the world • Pharma production plant (Mollet del Vallés - Barcelona) • Manufacturing 470 products of high pharmacological relevance • Investment (2008): 3.631 K€ • Manufacturing capacity : 3.000 million pharma doses and 105 million finished units • Chemical production plant (Mollet del Vallés) • Conceived as a multipurpose organic synthesis plant • Manufacturing Capacity: 2.200 tonnes/year • Investment (2008): 628 K€

6. The Pharma Industry is key to Europe • € 27.2 billion invested in R&D • 19% of global business R&D expenditure and higher percentage than any other industrial sector • 5th largest industrial sector • 3.5% of the total EU manufacturing value added • 635,000 highly qualified jobs • 117,000 of them in R&D • Trade surplus of € 48.1 billion • Highest contribution among high-tech industries to Europe’s trade balance

7. Pharma R&D in Europe: Some Facts Changes in research sites (2001 – 2006) Pharmaceutical R&D expenditure 1990-2008 (million national currency units) Pharmaceutical R&D Expenditure Annual growth rate (%) Innovative Medicines Initiative (IMI) Public Private Partnership –To accelerate the discovery and development of better medicines IMI budget for the period 2008-2017 is €2 billion (€1 billion from the European Community and €1 billion from industry)

8. Pharmaceutical innovation is about patients • Can expect to live 30 years longer than 100 years ago • Huge reductions in mortality (e.g. HIV/AIDS, many cancers, cardiovascular diseases) • Significant progress in quality of life (e.g. asthma, diabetes) • Huge challenges remain (e.g. Alzheimer, multiple sclerosis, orphan diseases)

9. The race for new medicines: an unpredictable lottery? Start Target • 3-5 substances reachmarket within 3-5 years • Different obstacles intoxicology, kinetics, formulation, R&D framework • Basic research leads to newscientific knowledge • > 30 Pharma companies startR&D programmes • Development: 12-15 years • No certainty of success • Profile of products not yet known It takes approximately USD 800 million to bring a new medicine to market* *DiMasi J, Hansen R, Grabowski H (2003). "The price of innovation: new estimates of drug development costs". J Health Econ 22 (2): 151–85.

10. Causes of the decline in R&D productivity • More complex scientific targets • Investments in biotechnology retooling • Increased product development costs • Shift towards risk avoidance means higher regulatory costs • Higher attrition rates in late stage development due to risk aversion/negative signals from pricing authorities not willing to pay for incremental innovation • Increasing regulatory requirements to mitigate perceived risks

11. Increasing regulatory requirements • Market Access and research work together throughout the product lifecycle to best meet the evolving needs of patients • “Megatrials” to determine the long-term benefits in real life • On-going pharmacovigilance monitoring • Pharmaco-economic studies to gather additional data on economic benefits • Search for new indications for proven safe and effective molecules • Publishing activities, scientific community outreach • Risk-benefit shift to pre-approval phases makes innovation more difficult

12. Need to reward incremental innovation • Most medical innovation is incremental(cardiovascular, asthma treatment, transplantation, antivirals, cancer drugs) • Without respect for patents no future innovation • Patent implies innovation, but what about added value? • Within a (therapeutic) group • Adequate reward for incremental innovation • Significant reward for breakthrough innovation • Innovation can come also from: • Better adherence • Improved quality of life • New modes of actions, treatment regiments, devices, etc

13. The arguments for and against pharma R&D investments in Europe • Qualified labor force • Favorable infrastructure for research • Education overall at high levels • but… • Lengthy reimbursement delays after approval • Inconsistencies between research, economic and health care policies • Over-regulation & rigid cost-containment policy • Different tax-laws, approval procedures etc. • Increased R&D competition between countries Insufficient reward for innovation = Insufficient incentives for investment

14. How can Europe attract more pharma R&D? Building a policy agenda to address the following: