M Driving a paradigm shift in the treatment of cancer

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1 M Driving a paradigm shift in the treatment of cancer Merck KGaA, Darmstadt, Germany & GlaxoSmithKline Dr. Stefan Oschmann, Chairman of the Executive Board and CEO Dr. Marcus Kuhnert, Member of the Executive Board and CFO Dr. Belén Garijo, M.D., Member of the Executive Board and CEO Healthcare Darmstadt, Germany February 5, 2019

2 Disclaimer Publication of Merck KGaA, Darmstadt, Germany. In the United States and Canada the group of companies affiliated with Merck KGaA, Darmstadt, Germany operates under individual business names (EMD Serono, Millipore Sigma, EMD Performance Materials). To reflect such fact and to avoid any misconceptions of the reader of the publication certain logos, terms and business descriptions of the publication have been substituted or additional descriptions have been added. This version of the publication, therefore, slightly deviates from the otherwise identical version of the publication provided outside the United States and Canada. 2

3 Disclaimer Cautionary Note Regarding Forward-Looking Statements and financial indicators This communication may include forward-looking statements. Statements that include words such as anticipate, expect, should, would, intend, plan, project, seek, believe, will, and other words of similar meaning in connection with future events or future operating or financial performance are often used to identify forward-looking statements. All statements in this communication, other than those relating to historical information or current conditions, are forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond control of Merck KGaA, Darmstadt, Germany, which could cause actual results to differ materially from such statements. Risks and uncertainties include, but are not limited to: the risks of more restrictive regulatory requirements regarding drug pricing, reimbursement and approval; the risk of stricter regulations for the manufacture, testing and marketing of products; the risk of destabilization of political systems and the establishment of trade barriers; the risk of a changing marketing environment for multiple sclerosis products in the European Union; the risk of greater competitive pressure due to biosimilars; the risks of research and development; the risks of discontinuing development projects and regulatory approval of developed medicines; the risk of a temporary ban on products/production facilities or of non-registration of products due to non-compliance with quality standards; the risk of an import ban on products to the United States due to an FDA warning letter; the risks of dependency on suppliers; risks due to product-related crime and espionage; risks in relation to the use of financial instruments; liquidity risks; counterparty risks; market risks; risks of impairment on balance sheet items; risks from pension obligations; risks from product-related and patent law disputes; risks from antitrust law proceedings; risks from drug pricing by the divested Generics Group; risks in human resources; risks from e-crime and cyber attacks; risks due to failure of business-critical information technology applications or to failure of data center capacity; environmental and safety risks; unanticipated contract or regulatory issues; a potential downgrade in the rating of the indebtedness of Merck KGaA, Darmstadt, Germany; downward pressure on the common stock price of Merck KGaA, Darmstadt, Germany and its impact on goodwill impairment evaluations, as well as the impact of future regulatory or legislative actions. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere, including the Report on Risks and Opportunities Section of the most recent annual report and quarterly report of Merck KGaA, Darmstadt, Germany. Any forward-looking statements made in this communication are qualified in their entirety by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. Except to the extent required by applicable law, we undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. This presentation contains certain financial indicators such as EBITDA pre exceptionals, net financial debt and earnings per share pre exceptionals, which are not defined by International Financial Reporting Standards (IFRS). These financial indicators should not be taken into account in order to assess the performance of Merck KGaA, Darmstadt, Germany in isolation or used as an alternative to the financial indicators presented in the consolidated financial statements and determined in accordance with IFRS. The figures presented in this statement have been rounded. This may lead to individual values not adding up to the totals presented. 3

4 Healthcare Strategy Continuing to deliver on our strategic roadmap Efficiency program Portfolio optimization in LS and PM Leadership in Performance Materials Turnaround in Healthcare 3 strong pillars Sigma integration First pipeline launches Portfolio management New applications beyond displays Fully leverage pipeline potential Abovemarket growth in Life Science Digital business models Maximize our pipeline potential: 1. Ramp up of Bavencio and Mavenclad sales (9M 2018: 106 m) 2. Solid growth of core business over 29 quarters 3. Diligent development and management of the pipeline (e.g. Evobrutinib, Bavencio RCC 1L, TGF-ß Trap) 4 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019 Acronyms: RCC = Renal Cell Carcinoma

5 Asset s fit with Merck KGaA, Darmstadt, Germany s R&D strategy Healthcare Strategy Actively managing portfolio for value maximization Full pipeline requires regular prioritization and de-risking decisions We continuously monitor all pipeline candidates Regular assessment of their potential is based on clinical data, strategic fit and financial criteria Merck KGaA, Darmstadt, Germany s key pipeline compounds 1 Strategic partnerships Bavencio TGF-ß Trap Evobrutinib Self Mavenclad Tepotinib DNA Damage Response We then decide on how to best develop the assets going forward Strategic partnerships and external financing are key to de-risk the pipeline and maximize its value Externalization Atacicept Abituzumab IL-17 Evaluate Asset s fit for Merck KGaA, Darmstadt, Germany s resources 5 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, : Assessment may change due to regular review

6 M7824 Bintrafusp alfa 1 A bifunctional fusion protein with significant potential M7824 First-in-class bi-functional fusion protein, targeting both TGF-β and PD-L1 Demonstrated superior anti-tumor activity in pre-clinical study compared to anti-pd-l1 alone, and anti-pd-l1 and TGF-β given in combination as separate agents Great excitement in IO community about M7824 uniquely addressing TGF-ß biology widely accepted as key resistance factor for anti-pdx therapies Clinical Development Achievements Tested in 14 Phase Ib expansion cohorts across >700 patients in more than 10 tumor types Shown clinical anti-tumor activity across multiple hard-to-treat cancers including advanced NSCLC, biliary tract cancer, HPV-associated cancers, and gastric cancer PhII study M7824 monotherapy versus pembrolizumab 1L, advanced NSCLC high PD-L1-tumor expressers started in October 2018 Clinical Development Plans Eight high priority immuno-oncology clinical development studies ongoing or expected to commence in 2019, including pivotal registrational studies in non-small cell lung and biliary tract cancers Further plans to be communicated at a later stage 6 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, : proposed International Nonproprietary Name (INN) Acronyms: NSCLC = non-small cell lung cancer

7 Choice of Partner Joining forces with a strong partner committed to advancing M7824 Selection criteria GlaxoSmithKline 1 Global pharma player with strong capabilities in the development and commercialization of blockbuster drugs Impressive global footprint & leadership with deep development and commercial oncology expertise Committed to advancing the development of M7824 Strong commitment to oncology reflected by: Leading industry talent Cutting edge portfolio Recent acquisition of Tesaro M7824 has potential for synergies with several of GSK's portfolio assets Aligned on future development plans Fully aligned on current clinical development plan, including decisions made prior to partnership 7 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, : Partnering approach complimentary to Merck KGaA, Darmstadt, Germany /Pfizer alliance

8 Choice of Partner Leveraging collective strengths and an aligned vision GSK Proven development commitment Complementary oncology pipelines Proven track record of collaborative R&D, with roughly 50% of the pipeline developed through collaborations M7824: the only TGF-ß / anti-pd-l1 therapeutic, discovered in-house DDR portfolio Strong commitment to oncology Strong industry talent Proven track record in collaborative R&D Rapid growth including Tesaro acquisition Several potential combination assets including ICOS, TLR4, STING and others Commercial strength Established Oncology footprint Global commercial footprint and growing oncology presence 8 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019 Acronyms: ICOS = Inducible T-cell costimulator, STING = Stimulator of interferon genes, TLR4 = toll-like receptor 4

9 Alliance Development Plan Exploring M7824 s potential in difficult-to-treat cancers Explorative Registrational NSCLC 1L NSCLC all-comers (CT combo) 1L NSCLC in PD-L1 high vs pembrolizumab (mono) 2 Stage III unresectable NSCLC 2 (CRT combo) 2 BTC Others Additional studies and settings (incl. Gastric, 1L BTC, TNBC and HPV related cancers) to be communicated at a later date 2L Biliary Tract Cancer (mono) Not yet started 1 Started / ongoing Registrational intent 9 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, : all studies shown to be commenced in : randomized controlled trials Acronyms: CT = chemotherapy, CRT = chemoradiotherapy, NSCLC = non-small cell lung cancer, BTC = biliary tract cancer, TNBC = Triple-Negative Breast Cancer

10 Deal Structure Attractive payment terms rewarding developmental success Total deal volume: 3.7 bn Milestone payments: 3.4 bn Upfront & Milestone Payment Structure Upfront payment: 300 m Development (up to 500 m) Approval Commercial Development milestones: Up to 500 m triggered by data from the M7824 lung cancer program Profit & Cost sharing Profits & Costs: Shared equally on a global basis Sales: Merck KGaA, Darmstadt, Germany to recognize sales in the United States, GSK to recognize sales ex-us 10 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019

11 Deal Structure Upfront and milestone payments recognized as Other Operating Income Payment type Amount (in ) Accounting treatment 1 Upfront payment Development milestone 300 m Up to 500 m Around 100 m anticipated to be recognized as other operating income in 2019 and remaining portion expected to be recognized until ~mid-2021 Majority deferred and recognized as part of other operating income over the remaining development term starting from the day on which the milestone is achieved Approval milestones Commercial milestones Sales Up to 2.9 bn n/a Recognized as part of other operating income as soon as the relevant success criteria are met Merck KGaA, Darmstadt, Germany to recognize sales in the US GSK to recognize sales ex-us Costs n/a Reconciled to ensure 50/50 share Profits n/a Reconciled to ensure 50/50 share Effective date Approx. second half of March following anti-trust clearance 11 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, : Accounting treatment subject to confirmation by the Group Auditors

12 Merck KGaA, Darmstadt, Germany and GSK Driving a paradigm shift in the treatment of cancer Innovative first-inclass bi-functional molecule (TGF-β plus PD-L1) leading the TGF-β immuno-oncology field Strong partner truly committed to co-developing M7824 and exploring synergies with their oncology portfolio Attractive deal terms rewarding developmental, regulatory and commercial success Eight high priority immuno-oncology clinical development studies ongoing or expected to commence in Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019

13 Constantin Fest SVENJA BUNDSCHUH ALESSANDRA HEINZ Head of Investor Relations Annett Weber Assistant Investor Relations AMELIE SCHRADER Assistant Investor Relations Institutional Investors / Analysts annett.weber@emdgroup.com Eva Sterzel Institutional Investors / Analysts amelie.schrader@emdgroup.com PATRICK BAYER investor.relations@emdgroup.com WEB: FAX: Retail Investors / AGM / CMDs / IR Media eva.sterzel@emdgroup.com Institutional Investors / Analysts patrick.bayer@emdgroup.com

14 Appendix

15 M7824 is a first in class TGF-β targeting bifunctional fusion protein TGF-β targeting overcomes poorly addressable tumor biology Appendix TGF-β Trap anti PD-L1 15 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019

16 Co-localization of two highly synergistic pathways M7824 is superior to co-administration of TGF-β trap and anti-pd-l1 Appendix MC38 Colorectal Cancer 16 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019 Lan et al, Sci Transl Med, Jan 2018

17 Ongoing phase I signal-finding studies treated >670 patients with M7824 Appendix Study design (NCT ) 1 Phase I, open-label, multiple-ascending dose trial Study design 001 Subjects with metastatic or locally advanced solid tumors and expansion to selected indications HCC 2L Pancreatic >2L TNBC >2L HCC 2L Expansion CRC >2L Melanoma PDx Failure Indications: NSCLC 2L Adeno Esophageal >2L Cervical >2L NSCLC PDx Failure SCCHN GBM >2L Locations: Sites in America, Asia, Europe and Oceania Study design (NCT ) 2 Phase I, open-label, multiple-ascending dose trial Study design 008 Subjects with metastatic or locally advanced solid tumors with expansion to selected indications in Asian subjects Sq. Esophageal Biliary tract 2L Gastric 3L Locations: Sites in Asia 17 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019

18 ORR (%) Non-small cell lung cancer (NSCLC 2L) Impressive durable responses seen across all PD-L1 expression levels Appendix Efficacy According to Independent Read, RECIST Keynote mg (data cut off 23 July 2018) M % (6/7) 60 Keynote % 18% 27% 29% 44% 25% (10/40) 37% (10/27) 0 All PD-L1+* PD-L1 high* All PD-L1+* PD-L1 high* * TPS 50% with 22C3 comparable to 80% with EMD 001 assessments 18 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019

19 Biliary tract cancer (BTC) - Update on Clinical Results ORR of 20% with long durability in allcomer population - IRC read Biliary Tract Cancer (Asian patients, 2nd line after platinum based 1st line) N=30 N INV % IRC (%) Objective responses (20.0) CR (3.3) PR (16.7) DCR (conf CR/PR/SD) (40.0) DoR PFS OS Median not reached, 6/6 ongoing for 8.3+ to months Median 2.6 months PFS % Median 12.7 months OS12 52% RECIST 1.1, Independent Central Read not reached SOC Efficacy BTC 2L (ASAN Medical Center, Lamarca 2014) ORR 7.5% (Lamarca 2014) Pembrolizumab BTC cohort in PD-L1 1%* ORR 5.8% Change in target lesions from baseline Best change in target lesions from baseline Appendix 19 data cut off date: 23 July 2018 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019 * Keynote 158, n=104 pts, 6.6% ORR in PD-L1 pos, 2.9% ORR in PD-L1 neg

20 HPV-associated cancers A potential pan-tumor therapy M7824 produced strong responses in these cancers, especially those HPV+ Appendix Data shown is from dose escalation portion of the Phase 1 HPV is associated with almost all anal and cervical cancer, and some SCCHN 1-3 Anti PD-1 monotherapies have shown clinical activity but response rates remain in the range of 17 26% 4-7 Analyses of HPV+ cervical and SCCHN tumor samples from TCGA and Oncomine demonstrate frequent dysregulation of TGFβR1 signaling, suggesting this pathway plays a role in HPV-mediated carcinogenesis 1. De Vuyst et al. Int J Cancer. 2009;124: ; 2. Ihloff et al. Oral Oncol. 2010;46:705 11; 3. Mehanna et al. Head Neck. 2013;35:747 55; 4. Bauml et al. J Clin Oncol. 2015;33(suppl; abstr TPS3094); 5. Ferris et al. N Engl J Med. 2016;375(19):1856; 6. Frenel et al. J Clin Oncol. 2017;35(36):4035; 7. Ott et al. Ann Oncol. 2017;28(5):1036; 8. Levovitz et al. Cancer Res. 2014;74(23):6833 BOR, n (%) CR PR SD PD N=17 (all HPV associated tumors) 2 (11.8) 4 (23.5) a 4 (23.5) 7 (41.2) N=12 (all HPV-positive) 1 (8.3) 4 (33.3) a 1 (8.3) 6 (50.0) ORR 6 (35.3) 5 (41.7) 20 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019 DCR 10(58.8) 7 (50.0) a 1 patient had an unconfirmed PD per RECIST prior to durable PR (assumed pseudoprogression)

21 Appendix Gastric Cancer (Asian patients, 3L+) A promising monotherapy in allcomers Long durability and response rates nearly twice as PDx RECIST 1.1, investigator read N=31 n INV % IRC (%) ORR (confirmed CR+PR) (16.1) CR (3.2) PR (12.9) SD (6.5) PD (67.7) NE (6.5) DCR (CR+PR+SD) (22.6) All comer population has been enrolled in this trial Efficacy According to Investigator-Assessed RECISTv1.1: Tumor Regression from Baseline Nivolumab Pembrolizumab Trial ONO-4538 KEYNOTE-059 Phase III vs. Plc II Line of Therapy 3L+ 3L+ mono Patient (n) ORR 11.2% 13% (PD-L1 pos) 21 Merck KGaA, Darmstadt, Germany & GSK Global Alliance February 5, 2019