mHealth Israel_Guy Eiferman_Healthcare Services_Merck & Co.

A small and shrinking piece … in a large and growing market

Branded, on-patent pharmaceuticals represent a small portion of total health expenditures (summary view based on 2011 averages across OECD in 2011)

HEALTH

Total Health Expenditures 80% of Pharma in value

Range: 56% to 97%

PHARMA(17%)

BRANDED(13.6%

in value)

BRANDED(10.2% in volume)

60% of Pharma in volume

Range: 24% to 91% Source: OECD Health at a Glance 2013.

Creating value and far from being the main cost driver

•   3'377

2'505

• +32%

• +12%

• 2010

• $455

• 2009

• 2008

• 2007

• 2006

• 2005

• 2004

• $406

•  

•   • Total Healthcare expenditure per capita

• Total Medicines expenditure per capita

Source: OECD Health Statistics Database; 21 Countries included: Austria, Belgium, Czech Rep., Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Netherlands, Poland, Portugal, Slovak Rep. Slovenia, Spain, Sweden, UK. A.T.

Kearney Analysis 2013

• $2,505

• $3,377

• 

Total healthcare expenditure per capita and total medicines expenditure per capita 2004-2010 in 21 EU OECD Countries (weighted according to population, current prices, PPP, $)

.. Pharma spending is a major target for cost-cutting

Across Europe, governments are in a "race to the bottom" with stringent cost-containment strategies targeting pharmaceutical cost.

Health and pharmaceutical spending growth

Source: OECD Health Data 2012

Source: The Boston Consulting Group

Innovative Pharma model impacted by numerous negative trends on ROI

5

«  If this level of diminished returns persists,[..] the rewards for innovation will not be sufficient for pharmaceutical manufacturers to maintain the [..] investments needed to sustain biomedical innovation » Source: Health Affairs , 34:2 Feb 2015

Opportunity: Healthcare systems are big, growing and inefficient

Source: “The world’s 4 trillion dollar challenge”, IBM Institute for Business Value 2010. Analysis based on inefficiency and improvement potential estimates reported by 518 economists during a survey conducted in 2009.

Economists estimate that healthcare is the least efficient system in the world.

Imp

rove

men

t p

ote

nti

al a

s p

erce

nt

of

syst

em in

effi

cien

cy

System inefficiency as percent of system’s total economic value

Quantifying Inefficiencypotential improvement / total economic

value

This chart shows ‘systems’ (not ‘industries’)

A « Must Read » .. From 2002 !

There is a compelling opportunity in services beyond the pill

Innovative drugs

PHARMA

PHARMA +

Using technology to add value to innovative drugs

Medicine Adherence

HEALTHCARE

PREVENTION

Solving health problemswith drugs, technology &

services

DataServices

WellnessPrograms

RemotePatient

Monitoring

Keeping people well

Nutrition

CaseManagement

Health &Social

Marketing

Coordination

of careHealth

Information

MedTech

CareServices

8

The Case for Action

• Offense:– Technology is available to crack the code

– Pharma has know-how & resources which can be leveraged

– Both incremental revenues & better value for core are possible

• Defense:– Other stakeholders (displacers) are coming

– Defensive relationship vis-à-vis customers is not sustainable

– Status Quo is not a good option !

In its long-standing tradition of responding to areas of need in human health, Merck has created Healthcare Services & Solutions LLC (HSS), an independent entity focused on improving the value of care delivered to patients worldwide through evidence-based services and solutions that:

Offer therapy neutral, brand agnostic solutions

Is organized and managed independently from the pharmaceutical product business

Welcomes partnerships with the full range of healthcare stakeholders to address complex issues

HSS

Addressing a Changing Landscape

NEW WORLDOLD WORLD

Physician-centric

Relying on subject matter experts

Emphasis on highly specialized care

Payments largely based on fee-for-service model with no alignment among healthcare participants

Focus on innovation, blockbuster, quantity and convenience of care delivery

Patient-centric

Leveraging information technologies

Emphasis on coordination/ integration

Payment systems focusing on outcomes, with alignment of incentives for relevant stakeholders (patients, payors, providers)

Focus on risk stratification, case management, real-world evidence

Innovation = Push BoundariesInnovation = Better Care at Lower

Cost

• 12

Clinical Services

Health Analytics

Engagement

HSS: Better Care, Greater ValueThrough our business affiliates, we provide services and solutions that focus on

With businesses such as Ilúm, we also focus in the area of Health Analytics, including data aggregation and analysis. HSS affiliates offer insightful analytics from across health systems and patient populations to help understand emerging trends in quality care and performance.

HSS: Better Care, Greater Value

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Through our business affiliates, we provide services and solutions that focus on

Clinical Services

These services as either stand alone or aggregated in customized solutions seek to provide more efficient care and allow our customers – Providers, Payers and Patients – to find value in today’s

complex healthcare system.

Health Analytics

Engagement

We focus on delivering services and solutions designed to support improved patient care. With patients and providers in mind, our affiliates are bringing Clinical Service solutions to the market that advance clinical decision support, infectious disease management, health management, coordination of care and pathway development.

Our services and solutions focused on Engagement include data collection, communication and education of stakeholders. Current solutions include platforms for virtual engagement, improved connectivity between patients, providers, and/or payors, and a digital health platforms aiming to empower patients and providers.

UK study demonstrates the overall value of an integrated remote management solution (Closercare- NHS CCG)

Project independently evaluated * Before Intervention is calculated as the mean of Q1 and Q4 (all-cause) Admissions COPD; n=98; HF; n=30

• Objective : Reduce COPD/HF related avoidable admissions, support patient confidence in self management, independence and quality of life, support the community service productivity by reducing travel time and frequencyEstablished an active care plan for 120 patients with COPD or HF monitored from 1st April 2014. 134 patients monitored during Feb-Sept 2014 (64% COPD/ 36% HF).

Before Intervention During Intervention

0.080.04

0.16

0.09

0.16

0.14

ED attendance *

HF

COPD

Mean admissions PMPM

Before Intervention During Intervention

5.69

4.11

7.4

7.25

HF COPD

Average Bed days per admission

Metric Per Member per Month (PMPM)Monthly monitoring cost £181

Gross saving

Net saving (Y1)Gross-Mon. Cost

Year 1 ROI

Net Saving (Y2)

Year 2 ROI

All-cause admissions (ALL patients) £198 £17 saving 9% £33 saving 20%

Cardiorespiratory admissions (ALL patients) £192 £11 saving 6% £27 saving 16%

Patients with at least 1 cardiorespiratory admission in the year before intervention (61 pt)

£468 £287 saving 159%

Reduction in demand :50% in Admissions66% in Bed-Days12% in A&E attendances

6,5%

7,0%

7,5%

8,0%

8,5%

Italian study demonstrates the overall value of an integrated remote management solution (The Re.Mo.Te* study)

Use of Doctor Plus® induced a statistically significant reduction in average HbA1c levels

Baseline 6 months

12months

Control

Source: Re.mo.te Clinical Trial, ADA 2014 congress, Abstract book , 2014-A-2181-Diabetes

• Objective : Evaluate Doctor Plus® Home Remote Management solution ability to improve metabolic control in individuals with Type 2 Diabetes (HbA1c) and its cardiovascular co-morbidities. The 302 patient (153 - Doctor Plus ®/ 149 - control group) study lasted close to 18 months involving 2 Local Health Units and almost 48 GPs as primary investigators.

149

87

110

11 8

53

72

-35%

-39%

-11%-21%

Control

Use of Doctor Plus® induces lower resource utilisation (# episodes/ year)

Spec. visits

Homevisits

Hospital/ ER

TOTAL

Resource utilization (# episodes/ year)

Aventura provides clinical awareness computing to improve the workflow of doctors and nursesClearDATA Networks provides cloud computing infrastructure and managed servicesPatient referral management and patient intake outsourcing services for providersLeader in cloud-based identity access management, secure collaboration and secure supply chain solutionsSuite of software solutions to enable data integration, harmonization and management in the cloud

Transforms clinical lab data and makes it accessible and usable for patients, providers and healthcare company analyticsReliable predictions about future R&D outcomes by harnessing the collective wisdom of their organization and outside expertsDevelops registry tools to help healthcare institutions build and manage purpose-specific research databasesContact center solutions including sophisticated consumer analytics from a wealth of unstructured data

Workflow-integrated, real-time decision support platform using structured and unstructured clinical data

Best in class physician validated Patient Heath Record, and services focused on the patient-physician relation (Canada)In-hospital care management mobile health solution that allows health care providers to ensure better care coordinationClosed-loop wireless remote monitoring service using the only FDA-approved algorithm for cardiovascular monitoring

Molecular imaging reference lab delivering relevant valuable quantitative data from clinically qualified imaging biomarkersFirst FDA cleared healthcare intervention solution that has proven to reduce A1C levels for patients with type 2 diabetesComprehensive treatment information for patients based on clinical data, personal & popular preference, cost and coverage

Provides rapid low cost tests for identification of hospital acquired infectionsMolecular diagnostics enabling early detection, and differential complex disease diagnosisAyogo improves patient engagement through use of social platforms and behavioral psychologyPremier clinical reference lab advancing cardiovascular risk assessment through novel diagnosticsSimple-to-use, fast point-of-care testing platform with low-cost, disposable microfluidics cartridgesElectrocore has developed the first self-administered transdermal vagus nerve stimulatorGenomic tests for prostate & urologic cancers guiding treatment decisions to improve outcomesPredictive analytics for senior facilities using passive daily activity monitoring to identify high impact events

Health IT Platforms

Technology Enabled Solutions

Merck GHI Fund has $500M under management and provides growth capital to emerging digital health companies worldwide

SELECTED PORTFOLIO COMPANIES

16

Conclusions

• Traditional Big Pharma model may not be sustainable as Payors and Providers are demanding demonstrated better care at lower cost

• Successful Healthcare companies will be part of the solutions rather than being targeted as part of the problem

• As in other industries, enriching innovative product development with added value services & solutions may complement offering in a customer-oriented way

• However, challenges from a governance, technology and policy viewpoints are numerous

• Prototyping in open, collaborative models is necessary

Back Up

Review of Individual Businesses &GHI Offerings

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Description: Monitoring of outpatients after surgery or long-term condition diagnosis to improve patient management and reduce costs

Strategic position: 2 countries deployed, Evidence-based services, Validated Outcomes

Addressed issues

Description: Chronic-care patient can benefit from remote management services enabling patient to be managed from their bedside, avoiding unnecessary visits and transportation, improving Hospital/ GP organisztion, generating substantial saving for payers

Key customers Hospital/ GP’s: Regional Hospital, CGG, Payors: National, Regional and Local Health Units, Prisons Customer base:

Local Health Units - Italy, Clinical commissioning Groups - UK

Addressed pathologies Diabetes CHF COPD

Key Outcomes and DataService provision

Doctor Led Nurse based Call center management services supervising Medical data captured at beside

Data is captured via medical Gateway or Mobile and securely hosted according to Local National guidelines

Rule-based expert system triggers events by nurses handled through approved Hospital/ GP guidelines

1. Savings for Payors : UK - £287 PMPM savings for Patients with at least 1

cardiorespiratory admission in the year before intervention

ITA – 35% less episodes (ER/ Admissions/ Visits)2. Improved HealthTarget Achievement

UK – Reduction in 50% in Admissions/ 66% in Bed-Days/ 12% in A&E attendances

ITA – 7,4% HbA1c level achievement vs 7,8% for control group after 1 year

3. Enhanced “Quality of life” (SF36® score)

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Description: Three validated major weight loss service offerings: self-directed, home-based, and clinic-based

Strategic position: Sales through various channels in high-potential growth area based on national and global epidemiological trends

Addressed issues

Description: HMR is a national healthcare company specializing in weight loss and weight management. HMR Programs offer lifestyle education, personalized attention, nutritious diet foods, structured diets, and an emphasis on improving health through weight management.

Key customers Direct to Patient Physician Offices

Addressed pathologies Obesity Diabetes Cardiovascular Disease

Validated Outcomes based services resultsService provision

Self-Directed: Quick start call and materials-driven self-coaching; healthy shakes option

At-Home: Quick start call and materials-driven self-coaching; Weekly group telephone coaching

Clinic-Based: New clinic opportunities, combining weekly group in-person coaching with direct medical supervision, available through HMR*

Self-Directed: Average drop of 13 lb (6%) at 12 weeks for completers1

At-Home: Average drop of 23 lb (10%) at 12 weeks for completers2

Clinic-Based: In morbidly obese patients (BMI ≥40) an average drop in body weight at 12 weeks for study completers of 46.7 lb (15.2% of IBW) utilizing a mix of VLCD and LCD diets3†

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Description: Vree Health is focused on solving major problems in US health care delivery including patient engagement, care coordination, and patient insights.

Strategic position: Pilots underway at select delivery system including Planetree health system

Addressed issues

• Description: Technology-enabled services are designed to meet the challenges of delivering effective and efficient healthcare, by helping to: 1) Engage patients and their families with individualized health support designed to inspire positive behavioral change, 2) Coordinate care across providers and extended care teams, 3) Aggregate and effectively utilize disparate data sources to provide actionable patient and provider insights

Key customers Hospitals Integrated Delivery Systems Managed Care Entities Skilled Nursing Facilities

Addressed Issues Care Coordination Transitions in Care Data Sharing Clinical Integration and Analysis

Key Outcomes and DataService provision

• In pilot at Griffin Hospital, over 90% of enrolled patients indicated that the TransitionAdvantage program has helped them stay on track with their recovery process

TransitionAdvantage® is a comprehensive transitional care service based on Vree Health's innovative patient engagement and care coordination platform EngageAdvantage™. It is built on the four pillars of care transitions program: 1) Medication management, 2) Dynamic patient-centered health record, 3) Primary care & specialist post-discharge follow up, 4) Red flag health issues for timely resolution

Infectious Disease Management & Anti-Microbial Stewardship

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Description: Real-time and best in-class information will be delivered to clinicians at the point of prescription through health information technology to support optimal decision making and appropriate use of antimicrobials. Initial product focuses on Infectious Diseases, specifically sepsis, pneumonia, & UTI. Advanced reporting and analytics provide comprehensive view of clinical and economic outcomes.

Addressed issues

Description: Approximately 99,000 deaths are attributed to hospital-acquired infections at a $28B to $33B annual cost in the U.S. alone. There is increasing awareness and appreciation of challenges faced by ID patients and the opportunity to improve how they are managed and how antimicrobials on used on their behalf. We are building health IT solutions that will enhance care and outcomes for acutely ill patients while also improving economic outcomes for health systems

Key customers Hospitals Integrated Delivery Systems Managed Care Entities

Addressed pathologies Infectious Diseases: Sepsis, UTI, Pneumonia, Intra-

abdominal and Skin & Soft Tissue Infections Resistance and HAI: Clostridium Difficile, MRSA, VRE , etc

Key Outcomes and DataService provision

• Between 5 and 10 percent of all hospital patients develop an infection. About 90,000 of these patients die each year as a result of their infection, up from 13,300 patient deaths in 1992.

• Sepsis was the most expensive condition to treat in US hospitals in 2011, resulting in more than $20 billion in aggregate costs, representing 5.2% of the combined cost for all hospitalizations and 6.9% of all Medicare costs

• People infected with antimicrobial-resistant organisms are more likely to have longer hospital stays and may require more complicated treatment.

SL Engagement• Institutional Audit• Education & Change Management• Pathway optimization• Institutional Planning

Clinical Decision Support• Comprehensive clinical profile• Insights delivered within existing workflow• Clinical pathways, antibiograms, rapid Dx, predictive analytics• Personalized based on patient

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Description: PI aspires to use the power of worldwide networks of healthcare professionals and life sciences companies together in ways that will change the practice and business of medicine for the better.

Strategic position: PI merged with Univadis to enhance reach and breadth of offerings.

Addressed issues

Description: A complete solution for life sciences companies that aim to reach health care providers with digital marketing and e-sampling. Deep client-centered capabilities in data analytics and campaign development and management. Integration of Univadis provides broader and deeper global reach.

Key customers Reach for life science companies into health care providers

and patients globally

Addressed pathologies Across all medical conditions

Key Outcomes and DataService provision

• Multi-channel digital marketing solutions• E-Detailing• Mobile-media platforms that can be used across purposes• E-Sampling solutions• Campaign development and management

• Reaches 2.6 million health care providers globally

• 80% average target list match

• 50mm patients via mobile add network

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Description: Telerx handles high-touch, complex consumer interactions on behalf of our valued clients; fierce focus on technology and compliance; and proven track record make Telerx the right choice for some of the world’s most well-known brands.

Strategic position: Customers across life sciences industry

Addressed issues

Description: Contact-center based business that provides global multi-channel engagement solutions designed to improve health outcomes and reduce cost. High focus on customizing solutions to individual customer needs.

Key customers Pharmaceutical and other life sciences companies Payers Providers Insurance Companies Pharmacy Benefit Managers

Addressed Issues Any health care issue requiring high touch, low cost

interactions with patients

Key Outcomes and DataService provision

• 24/7 support of clients in over 100 countries with over 30 languages and handling more than 35 million interactions per year.

• Business process outsourcer specializing in the multi-channel engagement of consumers, patients, healthcare professionals, and enterprise personnel via a network of global contact centers.

MSD approach to Services in Healthcare

• Creation of a wholly owned subsidiary, Healthcare Services & Solutions, separate from pharmaceutical business

• Aim at developing and commercializing globally Services & Solutions to payors, providers and other healthcare stakeholders for Better Care at Lower Cost (agnostic of brands or specific treatments)

• Organic growth of existing businesses, new projects as well inorganic growth, partnerships and Global Health Innovation portfolio will be basis for incremental & profitable revenues

The health care maze is delivering suboptimal outcomes

Primary Care Doctors Specialists Diagnostic Imaging

PayersPharmaciesHospitals

Limited access to relevant information at point of care

Operate in silos Overuse/Underuse/Misuse

Mired in administrative

complexity

Underutilized by patients and clinicians

Rewarded for volume not

value

Patients experience a highly fragmented system fraught with challenges

Patients do not receive best available care

… while waste & rising costs threaten system sustainability

Costs are rising across all sectors of health care, driven by waste and inefficiencies (US Data)

Sustainability of global health systems at risk

Primary Care Doctors Specialists Diagnostic Imaging

PayersPharmaciesHospitals

$25-45B in waste frompoor care coordination

$12 billion in unnecessaryimaging costs

>$106B in administrative costs

$27-$42 billion in excess antibiotic

prescriptions

$12B in unnecessary readmissions

$7 billion in excessive testing

Source Health Affairs: http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=82

Building on a Legacy of Science, Innovation, and Focus on the Patient

Pneumococcal Vaccine

Mectizan

Discovery of B1

Breakthroughs in Animal Health HPV

First Measles vaccine

Cortisone First statins

Three Approaches to Address Complex Issues

INCUBATION CO-CREATION INTEGRATIONWe know there are many ideas and

possibilities by collaborating We aim to partner through value adding processes to make these

ideas a reality.

We are continuously building new solutions, embracing collaboration or

co-construction to maximize relevance and impact.

We have an evolving portfolio of stand-alone businesses ready to deliver services and access to a

broad portfolio of partners through the Global health Innovation Fund

and strategic partnerships.

Developing a health IT solution that reads and processes data streams and provides immediate insights at the point of care to support clinical decisions that drive high quality outcomes in infectious disease and comprehensive antimicrobial stewardship

□ Diabetes PreventionWe are beginning work with major health system stakeholders to build new direct to consumer digital offerings in diabetes prevention. These offerings would be built off of the customer service solutions capabilities of TelerX and several health IT companies with which Merck has proprietary relationships.

□ Innovation Accelerator ProgramWe are building an accelerator program that will enable us to collaborate with our customers and partner with the most innovative healthcare startups in bringing their ideas to fruition, with the aim that the dialogue and exchange will spark innovation through healthcare’s more established players

□ Startup ChallengesBuilding off the lessons-learned from the Merck-HPN Challenge, we are poised to launch similar challenges when the need is ripe, leveraging existing relationships to rapidly build the required framework

TeleRx is a business process outsourcer with global, multi-channel solutions for virtual patient/HCP engagement; medical technology support services designed to improve health outcomes and reduce costs. information and product safety; and enterprise

HSS has created the largest digital engagement platform for health care providers delivering solutions in digital marketing, mobile media platform, e-sampling, data analytics, and campaign development and management. In addition it offers independent news, information, research, tools, and education for 24 distinct therapeutic areas

Illustrative Examples

Doctor Plus and Closer Care are based in Europe and offer integrated management of patients with long~term conditions providing validated evidence of improved patient care at lower costs.. Chronic-care patients can benefit from remote management services enabling them to be managed from their bedside, avoiding unnecessary visits and transportation, generating substantial saving for payers

Infectious Disease Management & Antimicrobial Stewardship

togetherLet us collaborate to develop solutions, scale prototypes, and create value that addresses some of society’s most challenging problems.

We are just beginning on this journey.