J.P.Morgan North America Equity Research O2 June 2014 • Merck & Co., Inc. Pushing Ahead Aggressively in PD-1 Development We attended Merck's ASCO analyst meeting today where the company reviewed new data and development plans for its PD-1 (pembrolizumab). Overall, we increasingly see Merck playing a leadership role in the immuno-oncology space given its aggressive clinical development approach to pembro with compelling data seen thus far in melanoma (Yervoy-naive and refractory), NSCLC (I st-line and pre-treated), and head and neck cancer. Further, we expect pembro to be the first PD-1 to launch (post- Yervoy melanoma, admittedly small indication) with a PDUFA in October. • Merck confirms PD-I efficacy in IL PD-L1+ NSCLC with 47% irRC ORIL First data from Merck's phase lb study of pembrolizumab in IL NSCLC showed a 47% (21/45) ORR by irRC (26% based on RECIST) across all three doses, and we note that 80% of patients had at least some tumor shrinkage, suggesting a clear place for PD-1 in this patient population. Merck is initiating a phase III for pembro in front-line PD-L1+ NSCLC in September. We note that Bristol initiated a phase III study of nivo in PD-L1+ IL lung earlier this year. Pembro head & neck data supports move into phase III. Merck highlighted its head and neck data, which was highly encouraging in our view. The study, which enrolled PD-L I+ recurrent and metastatic head and neck cancer patients, showed an ORR of 20% (11156) and 51% of patients exhibiting at least some tumor shrinkage. There was preliminary evidence that even within this population, the highest PD- L1+ expressers showed a much higher response rate (45% RR (5/11) above cut- point and 11% RR (5/44) below cut-point). We note that even the response rate in lower PD-LI expressers is in line with Erbitux, the only targeted therapy approved for head and neck. Pembro shows 69% 1-year survival in advanced melanoma, nivo/combo comparisons remain difficult. Today Merck p