Summer - Day 1 - June 27, 2023

Joe Volpe

I’m going to take you a little bit through our actual fund and how it’s structured and I’ll be quick here. I’m going to drop through these relatively quickly just to give you a feel of how we’re partnered with the businesses, particularly in my case, I support and work with our MMD folks, which is our manufacturing, supply chain, distribution, IT, et cetera, areas. We just started looking at that two years ago. And the way we’re structured is we have three basic buckets. It’s a $500 million fund and we’ve turned that over several times. And as a corporate venturing group, that’s pretty good. It’s hard to do that and stay strategic with an entity that you work with. We have an area called Next Horizon, and we have a gentleman named Prem Tumkosit that’s actually going to speak to that area on Wednesday. So look for that presentation. That’s investing a little earlier stage, a little further out. So we’ve done things like quantum computing and microbiome, things like that, that doesn’t necessarily have to be tied back to our businesses, but we’re exploring and educating our customers. Ourselves in those areas, and we think they’re important for our entity. The second area is venture capital bucket. And that’s later series, so series B and C, generally around the $10 million mark. We sit on the boards, we do the M&A, we do the diligence for these companies. And again, we’re in more areas than just the supply chain. And that’s usually not connected to a commercial deal, but it could be. And the third area quickly is growth capital. Again, it’s around the $10 million equity slot there, later stage, and usually there’s a commercial deal tied to it. So we have a lot of those entities, and some of the entities I’m going to show you are in that category. So that’s us in a flyby. Little more on us, and I’m not going to concentrate on kind of the chevrons they’re pointing in, but that circle is important. As we go to market with Merck, we are, in a good way, infiltrated with the businesses, and we’re trying to understand where they’re going strategically and invest alongside them. So in this case, I have this geared more towards MMD, which is the supply chain, but we’re doing this for other areas of the business, the sales area, the research and morale areas, et cetera. And we have a team that does that. So what I want to point out is the left side, innovation partnerships, business development, procurement, propriety, data analytics, we do all those things with our business partners and invest alongside. So it’s an interesting play because you get pulled into a lot of different areas, but that’s how we support them. And then obviously we sit in the middle. On the benefits side, why would we invest when Merck can just use the entity as a vendor? We feel it’s really critical to help these companies, particularly from a risk management standpoint. They’re smaller, they’re innovative, they’re more nimble, they can get things done for us, so strategically they can move and we can accelerate priorities and then to de-risk their capabilities is critical because they need to understand how to get capital, where to get capital from, so we help with that, we do strategy frameworking with the groups, etc. So it’s important to, and these are just three examples of the benefits, but it’s important to understand where we’re structured. This model is working very well. We’ve formalized it in the last two years, but we’ve actually been doing this probably for about 13 years informally, but now we’re tracking a lot more too. So I’m going to jump now into the actual talk, where does digital meet supply chain? I actually think we’ve met it. We’re doing some things already, we have a lot more to do, we’re at the tip of the iceberg, and I’m going to show you and I’m going to fly by some of these slides are very sausage making slides and very detailed, but it’s a good way to see, oh my god the complexities here are tremendous, how are you tackling this, what are you doing to execute to make, to make some type of traction. So this first one, when I saw this and took this on about two years ago, I was like, okay where the heck do I start? Where should I start with investing and where should our team look at, entities to start to plug in here that might help Merck, and really frankly this is an industry chart, and this could be for chips, or for computers, or for genes, it doesn’t matter. It’s still some of the same complexities. Our issue is we have cold chain products, and that’s harder. The way we look at products and how we build them, this is kind of a end-to-end, sort of a creation, a bulk drug product, that’s where all the drug product comes in, the bulk product, that’s where contract manufacturing organizations are used to help us manufacture the product. So think raw materials, and the raw materials and how to get them in, make sure they’re quality-wise, they’re well, and build – start building the actual product. The middle piece is packaging of that bulk product, so you have a somewhat finished product and you’re starting to build it out and pack it, and then the third piece is the distribution of the actual finished product out to the customers. That’s where we decided to concentrate, right here first. We’re working our way backwards, and I’m going to show you some investments we’ve made here that actually eventually will start to leak into these other areas from a digital perspective. Okay? So that’s my sausage-making slide. If I refer to that, that’s the one I mean. If you were to step back, these are some of the metrics that we felt during the COVID stoppages that we uncovered that we needed and we didn’t have. The two slides on each side are really just pictorials, and they’re live, of where our product sits. The metrics in the middle, we’re still trying to gather them and we’re still trying to understand them. We have vendors and investments that are pumping that data to us and I’m going to show you a little bit of how that’s actually working live. You can imagine, we need to know concentrationally where things are geographically, how secure is it, what’s been tampered with, financial solvency of the companies, the shippers, everything involved is critical. Core concentrated is huge. As you saw ships sitting on our coast, that was a huge problem for us and everyone. Then labor and human rights, there were a lot of strikes. Remember, some of the shipping companies just didn’t take in packages. Then there’s micro and macro supply chain. This is our step back, take a look at what we really need. Then even if you can get this data, what do you do from an event-based risk management standpoint, if you have it and you have to act? There has to be a way to actually mitigate it. So, just a quick snapshot, a lot here. I’m not going to go through this. The way to understand this is more of, if you take a look at your company, the site, your process, and the equipment and people, you really need to understand where you can do things differently, and what’s broke, what’s not broke, and where you can become more efficient. All I’m trying to show here is basically that we’re taking a look at this. If you look over here to the right, there’s some trucks up there that look like they’re pulling tractor trailers. They’re actual manufacturing mobile pods. What if you bring manufacturing to the area where you actually have to distribute? You can take out a lot of activity in between. That’s something we’re looking at. The other picture up there around, I’m probably in the way, sorry, is a picture of a company called AeroSafe. They don’t like to be called a box company. They’re a distribution service company, as a service company. They’re very technologically sound in terms of their cold chain shipping ability. That box is a green box, so it comes and goes. It comes back and forth. It can be used multiple times. The technology in it is phenomenal, including the liquids that actually can sense the temperature and freeze based on the temperature. The space-like container, it’s like out of NASA, out of the space station, how they use the cold. It’s not dry ice in a styrofoam box like you might get Joe Stone crabs from Miami. It’s very sophisticated and expensive to build. It has monitoring systems in it, on the product, in the product, on the box, wherever you want and it’s real-time. So I’m going to show you that a little bit. That’s one of the companies that we’ve invested in and are doing some work with. Okay, so the journey of a dose. If you’re not familiar with what we have to deal with, there’s some 5 to 15 touch points that our products hit as they cut across the delivery environment. Nothing can go wrong there, right, with 15 different entities touching it? And if you look across the bottom there, this is literally how a product might travel through time internationally or not. So you got a site, you got an ocean cross dock where product comes in, dumps it, truck goes out, might go to a port, which is a handler, go to another carrier, which is ship, maybe that brings it to another port where there’s a handler, there’s a trucker that takes it to another cross dock, and then it starts to fly out in different areas and then truck to the different warehouses. A lot can go wrong there. Data’s fragmented, we have issues with strikes, we have mechanical problems, we have weather problems. We’re starting to monitor these lanes very intensely and trying to understand them with another investment, which I’m going show you. So you’ll see AI come into this, you’ll see real-time monitoring come into this, you’ll see the ability to really predict what’s going to happen and, hey, don’t use that airline or don’t use that port at a certain time of the year. Things like that we’re starting to look at and it’s getting pretty sophisticated and interesting. Early days still, but we’re moving. Not going to kind of talk about the left side, but never losing a dose. The way we’re going to do it is to have this data. And connectivity is huge. The ability to track and trace it in real-time if we can, especially the expensive cold chain products. Real-time shipping sensors, we have to have good ones for certain conditions, different priced ones for certain conditions and different abilities. So all that and kind of configuring that becomes a challenge. We have to get alerts on this and be able to actually real-time react. And we have teams in place and we’re looking at the ability to do that and both at Merck and with some of the companies that we invested in, which I’ll quickly show you. And then sustainability, that’s a hot topic, right? And AeroSafe with the returnable boxes is saving huge CO2 and water, electricity, et cetera. And I’ll show you that. This is a big one. So take away anything, logistical twin. And there’s a logistical twin or digital twin term on the clinic side. And that’s kind of building a product out in a digital way. This is a digital logistics twin. So, a picture of the product, if you remember that first slide, raw material coming through the pipe, what does that look like? Can we actually track it from Tier 1, 2, 3 players back from where it’s being created? I’ll touch on that too, that’s important. And that’s where your AI and your ML is going to come into play. And we’re already starting to do that with some of these entities. This is example of that tier statement. So raw materials, this is an actual problem. This is a plastic bottle. This was during COVID. We bought from this tier vendor and didn’t know that they had three other tiers in back of them. And then there was another tier in back of them in Mexico. Any one of those gets upset, we’re in trouble, right? So how do you get a visual of this and how do you automate the ability to predict if any of those players are going to have a problem? That’s one of the things we’re going after, one of the things that we’re working with, with some of our investment companies. Texas freeze triggers a global plastic shortage. Who would have known that? Woodmills freeze in Texas and all of a sudden we have a plastic shortage. So these are the headlines that kind of happened, not necessarily to trigger this, but that we saw that triggered other issues. So we’re looking at this very heavily and we have modeling companies piloting ways to do this. And we have some of our investment companies actually looking at this as well. So, some of the companies that I spoke of, we started to look at this two years ago and I had a hard time kind of figuring out how to start. We actually started with our first investment in a company called AeroSafe. That’s that orange box, really cool entity. They’re in Rochester, New York. They do a lot of our 3PL, which is kind of like the last mile. And they can handle mostly cold chain, not only for vaccines and things like that and Katrina and whatnot, but they handle it for blood components and organs and things like that. So they’re a great company, looking for raises. So they are looking for funding and they’re doing very, very well. So that was a couple of years ago and we’re doing about 800,000 shipments through them today. The other company that I teamed with was Tag-N-Trac. Tag-N-Trac and AeroSafe are very tight. The devices that Tag-N-Trac produces are labels. They just slap on and they’re cellular. They are being used in the AeroSafe boxes. And then lastly, TransVoyant is kind of our anchor tenant. That’s a control tower, sits above everything, starts getting feeds of geographic data, political data, lane data, we have about 250 lanes live with that. So they’re kind of our anchor and very, very strong in terms of working with us to build out some of those use cases that I showed you. This is a quick example. Remember the Evergreen got caught in Suez Canal. We actually had a visual on our stuff at the time and we were using at this time a logger to pump temp data up to TransVoyant and that’s what we were looking at to see where our product was, what the temp was and should we intervene. So we’re doing that now and it’s getting more and more sophisticated and better as we get more data. And then lastly, this is an example of the box company, which they hate me saying that, and some of the emissions that they have saved, electricity, water saved, landfill reduced. So we’re being sustainable here and we’re trying to work hard with this entity. And in this case it’s 580,000 shipments but I think we’re well over this. This slide’s old already. Okay, and a little bit about us. That’s all I have. Thank you. And again, I’m around this week if they want to dig in on any of this and I know I flew through that pretty quickly but wanted to just give you a feel. Thank you.