1. Merck Overview
Merck Research Laboratories
Partnerships and Licensing
Policy and other

2. Mission of Merck Research Laboratories
Merck’s Philosophy
Our philosophy is to bring medical excellence to the patient by being First in Class or Best in Class and Demonstrating the Value to Patient, Payor and Provider
Mission of Merck Research Laboratories
Discover & Develop Breakthrough Medicines in Major Areas of Unmet Medical Need
Slide 9
New RXs for VIOXX are almost equal to Celebrex now and we expect to exceed them. Merck believes that VIOXX is Best in Class and is truly a once-a-day, whereas Celebrex may require dosing twice-a-day.
First in Class
MEVACOR®; HMG - CoARI in cholesterol lowering
COZAAR®/HYZAAR®; Angiotensin II antagonist in hypertension
FOSAMAX®; bisphosphonate in osteoporosis
PROSCAR®; Type 2 5a-reductase inhibitor for BPH
Best in Class
ZOCOR® introduced after MEVACOR®
VASOTEC® introduced after Capoten®
VIOXX® introduced after Celebrex
The Mission of Merck Research Laboratories

3. J&J•Merck Consumer Pharmaceuticals Merck and Schering-Plough JVs
Merck-Medco
Managed Care
Merck Research
Laboratories (MRL)
Independently Operated
and Managed
Manufacturing
Division
J&J•Merck Consumer Pharmaceuticals
Human Health
Division
If you discuss Merck-Medco, stress that while it is owned by Merck, it is managed independently.
J&J•Merck and Merial are joint ventures in which Merck has a 50% interest in each. J&J•Merck primarily sells OTC products including Pepcid AC. Merial is an animal health joint venture with Rhone-Poulenc (now Aventis). Merck contributed its AgVet business to the JV..
The new Merck/Schering-Plough JV’s are related to ezetimibe and respiratory deals. The cholesterol JV is called Merck/Scheing-Plough pharmaceuticals and the respiratory JV is called Schering-Plough/ Merck pharmaceuticals.
The Merck side of this organization chart just identifies the major operating groups.
Merial Limited
The Americas
Europe/Middle East/Africa
Asia Pacific
Merck and Schering-Plough JVs
Vaccine
Division
Aventis Pasteur MSD

4. Sales by Therapeutic Class
2001 Human Health Sales $21.3 Billion
Slide 5
Most notable difference is growth of Arthritis category due to the success of Vioxx.
Does not include Merck-Medco sales which are sales of non-Merck prescription drugs or benefit services. They are not disclosed on a therapeutic basis.
Elevated Cholesterol - Zocor and Mevacor
Ophthalmolgicals - Primarily Trusopt/Cosopt and Timoptic
Vaccines/Biologicals - Primarily Recombivax HB (HepB), MMRII (Measles, Mumps, rubella), and Varivax (chickenpox)
HIV - Crixivan (protease inhibitor) and Stocrin (non-nucleoside reverse transcriptase inhibitor)
Osteoporosis - Fosamax
Antibiotics - Primaxin, Noroxin, Mefoxin
Hypertension/Heart Failure - Vasotec/Vaseretic, Cozaar/Hyzaar and Prinivil/Prinizide
Arthritis - Vioxx
Asthma - Singulair
Anti-ulcerents - Pepcid
Other Merck - everything else (the 32% of Prilosec sales are included in this number)
2 of the top 5 products were
discovered in the Montreal Lab of MRL
VIOXX* and SINGULAIR*

5. Merck Research Laboratories
and
Product Development

6. Merck Research Laboratories R&D $2.9bil 2002 (+16% ; CAGR 12% ‘85-’01)
11,900 research employees (over 2000 doctorals) with advanced degrees at MRL Montreal
Several thousand publications per year (including joint)
patent applications per year
Global R&D efforts in a range of therapeutic classes
Over 100 NDAs approved since 1963
(Regulatory)
MF Canada:
Approximately 300 researchers with advanced degrees
Ph.D., M.Sc., B.Sc.
Chemistry, Biochemistry
Molecular Biology, Medicine
Pharmacology, Pharmacy
Computer Science
“Merck is the most impressive company in this analysis The regulatory team at Merck is clearly one of Merck’s most valuable assets”

7. Merck Research Laboratories Locations Includes multi-billion dollar capital building campaign in West Point, Pa and New Jersey
Montreal, Canada
Rahway, N.J.
IRBM, Italy
Respiratory, Asthma, Allergy, Inflammation, Osteoporosis
Metabolic disorders
Atherosclerosis
Infectious Diseases
Inflammation
Endocrine/Metabolic
Animal Sciences
Virology
Oncology
Boston, MA*
Coming in 2004
Madrid, Spain CIBE
San Diego, CA*
Screening
Neurosciences - Sibia
Banyu Res. Labs, Japan
West Point , PA
Rosetta Inpharmatics, WA*
Cardiovascular
Infectious Diseases
Endocrine/Metabolic
Cardiovascular
Ophthalmics
Bone Biology
Vaccines & Antivirals
Oncology
Neurosciences
Research interests
Asthma & Allergies
Biology of leukotrienes
PDE4 inhibitors
Inflammation
Biology of prostaglandins
Biology of apoptosis
Osteoporosis
CatK inhibitors
Multi-billion dollar capital building program (Rahway and West Point)
Sibia acquisition (San Diego)
Rosetta acquisition
Boston site
Genomics
Terlings Park, UK
Plus Clinical Research
Worldwide and Regulatory
Neurosciences
Chibret Lab, France
Safety Assessment

8. Merck Frosst Centre for Therapeutic Research
Research interests
Asthma & Allergies
Biology of leukotrienes
PDE4 inhibitors
Inflammation
Biology of prostaglandins
Biology of apoptosis
Osteoporosis
CatK inhibitors

9. Research Project Selection
Development Costly
successful new drug costs up to $800 MM
Most Projects turn out to be flawed
pathophysiology of many human diseases is complex in etiology & poorly understood
Picking the right project is the key to success
and the hardest if you want to be an innovator!
easy if you are a follower!

10. Research Project Selection
Is there a medical need?
what is the size of the population involved?
how serious is the problem?
what are the available therapies?
Is there a rational scientific approach?
is there a genetic or biochemical insight?
is there a specific target or pathway?
is there “proof of concept” available?
can it be an early goal of MRL Research?

11. Research Project Selection
Is it chemically feasible?
Some targets are difficult to approach with small molecules
What is the long-term perspective?
takes > 10 years to discover and develop a drug.
What is the competitive environment?
can we be first to develop an innovative product
Do we have in-house expertise?
If not, how can we develop it; can we collaborate?

12. Guiding Compounds Through Development
Project teams (Merck and joint with partners) - implement drug development; project teams are little companies within a large company
Commercialization-type teams - are charged with assuring that all company areas are aligned to make the product candidate a success (clinical research/ manufacturing/regulatory/ marketing)
Other Committees – cross-divisional Senior Management oversight and approvals
Large Clinical Outcomes Studies - Demonstrate the Value of Merck Products
ZOCOR®
Scandinavian Simvastatin Survival Study (4S)
Heart Protection Study (HPS)
VIOXX®
Vioxx Gastrointestinal Outcomes Research (VIGOR)
COZAAR®
Losartan Intervention for Endpoint Reduction in Hypertension (LIFE)
RENAAL
OPTIMAL
FOSAMAX®
Fracture Intervention Trial (FIT)
SINGULAIR®
Several ongoing outcomes studies

13. Licensing at Merck

14. 2001 Merck Human Health Sales $21.3 Billion
Licenses played an important to critical role in 7 of the 17 new product approvals since 1995
About one-third of Human Health Sales are attributed to licensed products, patents or formulations
Including:
COZAAR / HYZAAR
FOSAMAX
PEPCID
PRILOSEC
RECOMBIVAX HB
VARIVAX
MAXALT RPD Formulation
Others
Licensed Products, Patents and Formulations
~ 32%
Merck has been involved in many licensing arrangements and alliances since the early 1980s. We have numerous successes in achieving the ultimate goal -- getting a product to the worldwide market in an efficient and effective way. From this slide, you can see that currently over 1/3 of Merck’s human health sales are attributed to external relationships - some in fields where we are world renown (cardiovascular products, for example) and others in areas where we have created the market worldwide and set the standard for this therapeutic area. (such as osteoporosis)
2001 Merck Human Health Sales $21.3 Billion

15. Merck’s Licensing Arrangements Important Therapeutic Areas 1999 – 2001
Complementing Current Areas
Antibacterials
Elitra
Osteoporosis
Axys
Ophthalmics
Cole Eye Institute
Cholesterol
Schering Plough
Respiratory
HIV
CAT
Crucell
CytRx
Expanding Into New, Large Areas
Diabetes
ISIS
Kyorin
Neuroscience
NeuroTargets
SIBIA
Influenza
Biodiem
HCV
ISIS

16. Merck’s Licensing Arrangements Target Cutting Edge Science 1999 – 2001
Pharmacogenomics
Rosetta Inpharmatics
Genomics/Proteomics
DoubleTwist, LifeSpan, Amersham Pharmacia, Proteome
Gene Tools/Targeting
Lexicon, Sangamo, Affymetrix
Lead Identification
NeoGenesis
Assay Development
Chromagen
Chemical Libraries
Array Biopharma, Chembridge, Discovery Partners
Knock Out Mice
Deltagen
Drug Delivery
Elan/Nanosystems
Flamel
Symyx
Biologics
ProBioGen

17. Preclinical/Clinical
Our Network of Relationships*
AstraZeneca
INVANZ®
Yamanouchi / J&J
PEPCID®/PEPCID AC®/
PEPCID COMPLETE®
BMS (formerly Dupont Pharma)
COZAAR®/HYZAAR®
Gentili
FOSAMAX®
Kyorin
NOROXIN®
Osaka Univ. / Biken
VARIVAX®
Biogen/Chiron/Genentech
U. Cal/U. Wash/Inst. Pasteur
Hep B vaccine/COMVAX®
Preclinical/Clinical
Development
Schering-Plough
Vical
Isis
Kyorin
CSL
Biodiem
CAT ProBioGen Elitra Celera KaroBio Isis
Cole Eye Institute NeuroTargets NeoGenesis
CMMT
Basic Research
Collaborations
CHOP/Wistar Institute
Elan/Nanosystems RP Scherer Flamel CytRx Symyx
Formulation and Delivery
Technologies
Celltech
Enabling/Platform
Technologies
Array Exelixis Aurora
Cellomics Incyte Proteome
DoubleTwist Lexicon Crucell
Chembridge LifeSpan Harvard
Albany Molecular Sangamo
Chromagen Amersham
Genzyme Evotec Deltagen
Discovery Partners Affymetrix
Build 1: (existing partners)
Over the years, we have developed a broad network of relationships, in various areas -including collaborations on compounds in preclinical and clinical development, basic research collaborations leading to compound discovery and development, numerous enabling and platform technologies, many in chemistry and genomics, and finally a variety of delivery technologies to enhance current products.
Build 2: (overlay of licensed products that have been marketed)
Now you see as well those products resulting from licensing that have been successfully commercialized. We believe we are very successful at arriving at this ultimate objective - to market products on a worldwide basis and optimize their commercial potential. We undertake global clinical development programs with a high degree of speed and accuracy to obtain the broadest claim structure possible. Then we support our products throughout their life cycle with additional claims as well as to demonstrate their economic value to payers, providers, and patients worldwide.
*Disclosed agreements

18. Merck is a Flexible, Experienced, and Committed Partner Merck is Constantly and Proactively Seeking New External Opportunities
Each external relationship receives high priority at all levels of Merck,
Compounds resulting from external arrangements are fully integrated into the Merck drug development process with the same level of rigor and resources as internally discovered product candidates
Once we execute the agreement, we pride ourselves on giving each external relationship high priority at all levels of Merck, regardless of whether the agreement is in discovery research, development or marketing.
Compounds that come from external relationships are fully integrated into the Merck drug development process with the same level of rigor and resources as internally discovered product candidates.
Merck is Constantly and Proactively Seeking New External Opportunities
Keen awareness and constant review of the discoveries and developments across the entire drug discovery and development community
Formal review and response for every opportunity
A well established and efficient process
An expert group focused on the scientific and commercial aspects of each opportunity
External Research Team mobilizes senior management from various disciplines
Highly skilled personnel in the negotiation, structure and management of alliances

19. Review and Licensing Committees 17 Review and Licensing Committees targeting Therapeutic Areas & Technologies
Molecular Profiling
Neuroscience
New Vaccine Technology
Ophthalmic
Research Technology
Respiratory
Urology/Dermatology
Women's/Men's Endocrinology
Anti-Infectives
Antiviral
Biologics and Antibodies
Cancer
Cardiovascular
Diabetes, Obesity and Atherosclerosis
Drug Delivery
Gastrointestinal
Immunology and Rheumatology
Our process is well defined and clear. We focus on a constant review of all discoveries and developments across the entire drug discovery and development community.
All opportunities are reviewed by 17 Review and Licensing Committees targeting all major therapeutic areas and technologies, including genomics and gene therapy.
We formally review and respond to each and every opportunity.
Once we select an opportunity to move forward on, we have very senior level personnel on both the scientific side and commercial side to move the negotiations forward quickly and efficiently to completion. We also have the full and focused attention of Senior Management to arrangements being brought forward.

20. Expertise to bring the best in science to Merck
Worldwide Licensing & External Research
Expertise to bring the best in science to Merck
Mr. Richard Kender Vice Pres. Corporate & Business Development
Dr. Bennett M. Shapiro Executive Vice Pres Worldwide Licensing & External Research
Ms. Barbara Yanni
Dr. Greg Wiederrecht Executive Director External Scientific Affairs
Information Group
Chief Licensing Officer
NCEs and New Biologicals
Transaction Leaders
• Project Lead/Negotiator
Research Technologies
Relationship Management
• Relationship Development and Management
Platform Research Technologies
• Chemistry, Screening, Pharmacogenetics
Transaction Services
Dr. Lewis R. Mandel Emeritus Academic Programs
• Project/Company/Analysts

21. Some other comments Premier scientific research organization
Excellence in translating cutting-edge science into break-through medicines
Conferences, scientific meetings- two way
Journals, abstracts
Graduate school and post doc contacts important
Regulatory and access environment
Research a companies interests
We pride ourselves on being a preferred partner, with major benefits to offer. Our premier scientific research organization has great success in translating cutting edge science into breakthrough medicines, our industry leading product development group offers great efficiencies and an excellent track record with regulatory authorities around the world, we offer an extensive manufacturing infrastructure, and demonstrated worldwide and world class marketing capabilities (recently demonstrated by the launch of VIOXX).
Finally, we’re an extremely stable partner with a dedicated focus on products, not mergers!

22. External Relationships Will Continue To Be Essential To Merck’s Success
Alliances at all stages of the discovery and development process will complement a robust and therapeutically diverse pipeline that will be a key driver to Merck’s success
To sum up, external relationships will continue to be essential to Merck’s success, as they have been in the past. We believe the recent internal changes only further strengthen Merck’s commitment to partnering.

23. “We try never to forget that medicine is for the people
“We try never to forget that medicine is for the people. It is not for the profit. The profit follows, and if we have remembered that, they have never failed to appear”
George E. Merck

24. For more about Merck & Co. and Merck Frosst Canada Ltd
merckfrosstlab.ca
merckfrosst.ca
merck.com
Patrick Lauzon
Manager of Corporate Affairs
Merck Frosst Canada Ltd
11131 Hammersmith Gate
Richmond BC V7A 5E6
(604)

25. Back up

26. Intellectual Property Protection Quality of R&D and R&D Infrastructure
Policy Goal Stimulate Economic Development
FEDERAL FACTORS
Intellectual Property Protection
Regulatory Approval
Reasonable Pricing
PROVINCIAL FACTORS
Quality of R&D and R&D Infrastructure
Market Access
Talent
Public $ Support
Tax Incentives
Listing
Recognize Innovation
Governments must consider health and economic development policy goals simultaneously. They cannot ignore the fact that health policy can have a negative effect on economic development. As much as possible, win-win situations should be encouraged.
In competing for R&D investment, international companies consider many factors when determining where to put limited investment dollars. There are a number of factors that are in the federal government arena: internationally competitive IPP, an effective and efficient regulatory process and reasonable pricing.
Provincially, the research infrastructure and market access for innovative products are the two key areas examined when making investment decisions.
BC has an excellent infrastructure for research and development and outstanding scientists. However, market access is a concern. The RDP creates a negative investment climate for biomedical research in BC as it treats innovative products as commodities, thereby not recognizing the value of innovation.

27. RDP - BC Investment Performance
Policy Goal Stimulate Economic Development
RDP - BC Investment Performance
18.2
14.4
8.2
7.3
Since the introduction of the RDP British Columbia has lagged behind the other Western Provinces in the amount of Rx&D investments received. Alberta has increased its share of R&D investment, at the expense of BC.
Even though BC has a larger population base there has been a cumulative investment gap between Alberta and British Columbia (PMPRB)
= $82.3 million
= $60.6 million (since introduction of RDP)
BC receives the lowest per capita investment dollars of the Western provinces.
PMPRB 2001

28. Merck Research Laboratories
2002 R&D Spending - Approx. US$2.9 Billion
R&D 12% CAGR
8 (9) Basic Research Facilities Worldwide
>7000 Employees (>1600 doctoral)
Basic Research - >750 PhD-level Scientists
Global R&D Efforts Covering the Full Spectrum of Human Disease

29. ($ in billions except EPS)
Financial Highlights
($ in billions except EPS)

30. Merck Frosst Centre for Therapeutic Research
Research interests
Asthma & Allergies
Biology of leukotrienes
PDE4 inhibitors
Inflammation
Biology of prostaglandins
Biology of apoptosis
Osteoporosis
CatK inhibitors

31. Is Drug Discovery hard? 15 Years Introduction Product Surveillance15
Introduction
Registration
Development
Basic
Research 1 2
2-5 5
5,000
Substances
?????
Product Surveillance
Clinical Tests
(Human)
Preclinical Tests
(Animal)
Synthesis
Examination &
Screening
Phase IV
III II
Phase I
Source: PhRMA
Years

32. Inderal
Tagamet
Capoten
Seldane
AZT
Mevacor
Prozac
Diflucan
Recombinate
Invirase
Lopressor
Zantac
Vasotec
Hismanal
Videx (ddl)
Pravachol
Zoloft
Sporanox
Kogenate
Norvir
Innovative Drug/Year of Introduction
Follower Drug

33. The Mission of Merck Research Laboratories
Discover & Develop
Breakthrough Medicines in
Major Areas of
Unmet Medical Need

34. Alliances – A Critical Role
What’s going to happen over the next several years? As you can see, 7 out of the 11 products in Merck’s late stage pipeline have resulted from licensing initiatives, once again demonstrating the ongoing importance of external relationships to Merck’s continued success.
Resulting from alliance/licenses