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

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 Serono The 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 player Facts 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 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) Mollet del Vallès (Barcelona)

5. Spain, a key player Production 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 Pharmaceutical R&D expenditure 1990-2008 (million national currency units) Changes in research sites (2001 – 2006) 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? StartTarget Basic research leads to new scientific knowledge > 30 Pharma companies start R&D programmes 3-5 substances reach market within 3-5 years Different obstacles in toxicology, kinetics, formulation, R&D framework 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. - 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. 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 The arguments for and against pharma R&D investments in Europe

14. How can Europe attract more pharma R&D? Incentives to reward innovation that reflect the current R&D trends Improved patent system and European Community Patent Simplified European regulatory and administrative processes Predictable marketplace conditions (reward for innovation through value-based pricing) A sustainable pricing and reimbursement system Support for the development of centres and clusters of excellence Strong political support and leadership to realise long- term investments in healthcare Building a policy agenda to address the following: