Our pharmaceutical pricing approach helps to ensure a sustainable supply of products for future generations of patients. This allows us to recover the costs we incur, including, among others, costs from research, development, manufacturing, regulation and distribution. We can furthermore continue investing in the discovery and development of new medicines.

The affordability of our health solutions is part of our wider patient value proposition, which includes accessibility, availability and awareness. We are aware of the importance of affordable access to medicines in developing countries. As a result, we commit to pricing our products responsibly and to engaging in innovative equitable pricing schemes in partnership with governments and other key stakeholders.

We recognize that individual countries have varying abilities to pay for our health solutions. We conduct yearly reviews of our pricing strategies to identify ways to expand access to health by aligning prices with affordability. We are committed to implementing inter-country equitable pricing schemes. Via low-priced tenders, we offer intra-country differential prices to health ministries and to social health insurance systems. These institutions play a critical role in financing the healthcare of patients who would not otherwise be able to afford treatment.

There are three ways in which we make our products affordable to different patient segments within individual countries:

1. Participation in government tenders for products used in public hospitals serving low-income patients.
   • Merck KGaA, Darmstadt, Germany supplies products to governments at reduced rates in Africa, Latin America, the Middle East and Southeast Asia.
2. Establishing second "low-price" brands of existing brands to address patients with out-of-pocket expenses:
   • In South Africa, Concor and Ziak (antihypertensive agents) second brands are available at discounted prices.
3. Patient Access Programs (PAPs) that can offer products at reduced costs:
   • Through the Erbitux^® China Patients Aid Program (ECPAP), the Beijing Red Cross Foundation and the biopharmaceuticals business in China are working collaboratively to help expand access to Erbitux^® for metastatic colorectal cancer. This program, launched in 2011, aims to identify patients who cannot afford the treatment but who could benefit from Erbitux^®. The biopharmaceuticals business set up registration centers at around 100 selected hospitals in 60 cities, through which patients can apply. So far, more than 3,100 patients have benefited from this program.

We also have PAPs in other countries such as the Philippines, Indonesia and Thailand, where we offer Erbitux^® for colorectal cancer at reduced prices to patients who do not have health insurance and who would otherwise have to pay the full price for this treatment.

Local manufacturing, distribution and supply chain

To address the varying abilities of countries to pay for our health solutions, we implement innovative mechanisms, such as supporting local manufacturing in these countries. Merck KGaA, Darmstadt, Germany produces a range of essential medicines for patients with diabetes, heart disease and low respiratory conditions in its own manufacturing plants located in developing countries, such as Pakistan. Local manufacturing allows us to supply affordable medicines to local markets and neighboring countries (in this case Afghanistan, Sri Lanka and Myanmar) at considerably lower prices than in Europe.

Of the approximately 350 medicines on the WHO Essential Medicines List , the company provides 65 medicines to developing countries. These medicines are currently distributed in 74 developing countries, including 35 countries in Africa, 18 in Asia and 12 in Latin America. Our products are available in nearly two thirds of Least developed countries (LDCs), including nations such as Afghanistan, Benin, Burkina Faso, Ethiopia, Haiti, Mali, Myanmar, Nepal, Senegal, and Sudan.

Safe and secure supply chains help ensure patient access to quality health solutions. In delivering our health solutions to patients, our policies and procedures help ensure that appropriate quantities of our products are delivered in the right condition, at the right place and on time. We improve efficiencies and speed up product delivery by bringing all actors together as well as by integrating the steps along the supply chain.

We are dedicated to maintaining quality and safety at every step of production and delivery. We do this by following internal quality management guidelines, complying fully with global Good Manufacturing Practices (GMP ) and Good Distribution Practices (GDP) and working with associations and partners. For instance, we are a part of Rx-360 , a consortium responsible for protecting patients’ safety by sharing information and developing an end-to-end safe supply chain. We use a variety of approaches to ensure the authenticity of the products manufactured and sold under the Merck KGaA, Darmstadt, Germany brand.

As supply chain barriers cannot be solved by one actor alone, we are an active partner of the Neglected Tropical Diseases Supply Chain Forum. We have also launched a multi-stakeholder dialogue on accessibility challenges to discuss how we can partner to strengthen developing country supply chains.

In order to strengthen local supply chains we support various initiatives that were recognized in the 2014 ATM Index as best practices:

• The company is developing a platform to ensure local quality manufacturing standards known as the Virtual Plant Team. This will provide support, expertise and training to local managers in Africa, Asia and Latin America.
• Through our Temptation Project, we use heat and humidity sensors to monitor the transportation conditions of all our products shipped from Europe to the rest of the world. We use the data collected in a centralized system to ensure product quality and improve transport centers.

We are also seeking ways to address the forward integration of supply chains through a software tool that can improve stock management, which has been tested in Sudan and Ethiopia. This tool has been integrated with our order management system and improves price transparency while reducing lead time and miscommunication.

In May 2014, IMS Health, a global information and technology services company, issued a report entitled “Supply Chain Optimization in Africa’s Private Sector: Reducing the Price to Patient”. In this report, the company was recognized as a best practice company for our efforts to make six prescription and OTC products in Kenya more affordable for patients at the point of delivery. Thanks to innovations in our distribution strategy, we lowered prices by as much as 44%-55%, which was made possible by streamlining our processes in Kenya. For instance, we are now using fewer middle men in-country to distribute our products. This demonstrates how lower prices can be an indirect outcome of more efficient distribution systems.