EXECUTIVE OVERVIEW

Overview of Schering-Plough

Schering-Plough is an innovation-driven science-centered global health care company. Schering-Plough discovers, develops and manufactures pharmaceuticals for three customer markets - human prescription, animal health and consumer. While most of the research and development activity is directed toward human prescription products, there are important applications of this central research and development platform into the animal health products and the consumer health care products. Schering-Plough also accesses external innovation via partnering, in-licensing and acquisition for all three customer markets.

Strategy - Focused on Science

In 2003, soon after Fred Hassan was elected as Chairman of the Board and Chief Executive Officer of Schering-Plough Corporation, he initiated a six-to-eight year strategic plan, called the Action Agenda. A key component of the Action Agenda is applying science to meet unmet medical needs. A core strategy of Schering-Plough is to invest substantial funds in scientific research with the goal of creating therapies and treatments that address important unmet medical needs and also have commercial value. Consistent with this core strategy, Schering-Plough is increasing its investment in research and development. Schering-Plough has been successful in advancing the pipeline and has several late-stage projects that will require sizable resources to complete. As Schering-Plough continues to develop the later-phase pipeline compounds (e.g., golimumab, sugammadex in the U.S., thrombin receptor antagonist, vicriviroc, boceprevir and asenapine), it anticipates higher spending on clinical trial activities. Schering-Plough's progressing early pipeline includes drug candidates across a wide range of therapeutic areas.

Another key component of the Action Agenda is the focus on building long-term value for shareholders and for the patients who rely upon Schering-Plough's drugs. This longer-term focus includes concurrent emphasis on growing sales, disciplined cost controls and investing in research and development for the future.

Early on, Hassan and the new management team that he recruited applied the Action Agenda to stabilizing, repairing and turning around Schering-Plough after Schering-Plough encountered challenges earlier this decade under a prior management team.

Currently, Schering-Plough continues work in the fourth of five phases of the Action Agenda. During the fourth, or Build the Base phase, Schering-Plough continues to focus on its strategy of value creation across a broad front. Over the past four years, sales of Schering-Plough pharmaceutical products across an array of therapeutic areas showed strong growth compared to prior periods and other pharmaceutical companies. Schering-Plough's pharmaceutical sales and marketing activities expanded geographically, including into Brazil, China and Russia. This geographic diversity adds to growth and makes performance less sensitive to any one geographic area. The strategic Organon BioSciences N.V. (OBS) acquisition was closed in November 2007 and significant integration activities continue. The OBS acquisition added further diversification of marketed products, including two new therapeutic areas (Women's Health and Central Nervous System); key pipeline projects; significant strength in the Animal Health products and pipeline; and significant talent, including in key research and development functions.

As part of the Action Agenda, Schering-Plough continues to work to enhance infrastructure, upgrade processes and systems and strengthen talent. While these efforts are being implemented on a companywide basis, Schering-Plough is focusing especially on research and development to support Schering-Plough's science-based business.

The pharmaceutical industry is under increasing political and regulatory pressure, particularly in the United States and Schering-Plough and the Merck/Schering-Plough cholesterol joint venture have encountered specific challenges during 2008, as explained in more detail in Part II, OTHER INFORMATION, "Recent Cholesterol Clinical Trials."

The strength Schering-Plough built during the earlier phases of the Action Agenda, including the diversified group of products, customer segments, and geographic areas, as well as its highly experienced executive team, will be helpful in weathering current and future challenges, including those relating to the Merck/Schering-Plough cholesterol joint venture.

Regarding challenges related to the recent cholesterol clinical trials, Schering-Plough's strategy is centered on emphasizing the science around high LDL cholesterol (low-density lipoprotein, often known as "bad cholesterol"), which medical experts and health advisory groups have long recognized as a significant cardiovascular risk factor and recommended increasingly aggressive treatment of high cholesterol for certain patients. Lowering LDL cholesterol, along with a healthy diet and lifestyle changes, remains the cornerstone of lipid treatment for patients at risk for heart disease. Clinical studies have demonstrated that VYTORIN lowers patients' LDL cholesterol more than rosuvastatin, atorvastatin and simvastatin at the doses studied and was able to get more patients to the LDL cholesterol goals identified by the National Cholesterol Education Program, Adult Treatment Panel III (ATP III) guidelines. The ENHANCE and Simvastatin and Ezetimibe in Aortic Stenosis (SEAS) clinical trials also demonstrated superior LDL cholesterol lowering with VYTORIN compared to simvastatin (ENHANCE) and placebo (SEAS). See "Outlook" for the current perspective on the effects of these challenges on Schering-Plough's business.

In April 2008, Schering-Plough announced the Productivity Transformation Program (PTP). The goal of this program, which includes the ongoing integration of OBS, is to create a leaner, stronger company to support Schering-Plough's goal of building long-term high performance despite the current challenging pharmaceutical industry environment and the particular challenges facing Schering-Plough. This program targets savings of $1.5 billion on an annualized basis by 2012 and is designed to reduce and avoid costs, while increasing productivity. Of the total targeted savings, approximately $1.25 billion are anticipated to be accomplished by the end of 2010 with the balance achieved by 2012. The targeted savings envisioned by this program include those resulting from the previously announced OBS integration synergies. Beyond this program, Schering-Plough anticipates investing in new high priority clinical trials, the pursuit of strategic opportunities, including product launches and anticipates natural cost growth. Approximately 3,000 positions have been eliminated through September 30, 2008.

Results and Highlights for the three and nine months ended September 30, 2008:

• Schering-Plough's net sales for the three months ended September 30, 2008 were $4.6 billion, an increase of $1.8 billion, or 63 percent, as compared to the three months ended September 30, 2007. This increase in net sales was primarily due to the contribution of the products from OBS during 2008. Net income available to common shareholders for the three months ended September 30, 2008 was $551 million, as compared to $713 million in the three months ended September 30, 2007. The decrease in Net income available to common shareholders was primarily due to the impact of purchase accounting items from the OBS acquisition and increased interest expense as a result of the issuance of debt in the second half of 2007. These amounts were partially offset by the impacts of a gain on currency options in the 2007 period and a gain on the divestitures of certain Animal Health products in the 2008 period.

• Schering-Plough's net sales for the nine months ended September 30, 2008 were $14.2 billion, an increase of $5.2 billion, or 58 percent, as compared to the nine months ended September 30, 2007. The increase was primarily due to the contribution of the products from OBS during 2008. Net income available to common shareholders for the nine months ended September 30, 2008 was $1.2 billion, as compared to $1.8 billion in the nine months ended September 30, 2007. The decrease in Net income available to common shareholders was primarily due to the impact of purchase accounting items from the OBS acquisition and increased interest expense as a result of the issuance of debt in the second half of 2007. These amounts were partially offset by the impacts of a gain on currency options in the 2007 period and a gain on the divestitures of certain Animal Health products in the 2008 period.

• For the three and nine months ended September 30, 2008, sales of Human Prescription Pharmaceuticals in the U.S., excluding sales from OBS, increased 1 percent and decreased 3 percent, respectively.

• For the three and nine months ended September 30, 2008, net sales outside the U.S. totaled $3.2 billion and $9.9 billion, respectively. This approximated 70 percent of consolidated net sales for both periods.

• Increased sales in the nine months ended September 30, 2008, of pharmaceutical products such as REMICADE and TEMODAR as well as increased sales in the Animal Health segment contributed favorably to Schering-Plough's overall operating results.

• Global combined net sales of Schering-Plough's cholesterol franchise products, VYTORIN and ZETIA, decreased 6 percent during the first nine months of 2008 as compared to the first nine months of 2007. Combined net sales of the products VYTORIN and ZETIA in the U.S. decreased 20 percent during the first nine months of 2008 as compared to the first nine months of 2007.

Strategic Alliances

As is typical in the pharmaceutical industry, Schering-Plough licenses manufacturing, marketing and/or distribution rights to certain products to others, and also manufactures, markets and/or distributes products owned by others pursuant to licensing and joint venture arrangements. Any time that third parties are involved, there are additional factors relating to the third party and outside the control of Schering-Plough that may create positive or negative impacts on Schering-Plough. VYTORIN, ZETIA and REMICADE are subject to such arrangements and are key to Schering-Plough's current business and financial performance.

In addition, any potential strategic alternatives may be impacted by the change of control provisions in those arrangements, which could result in VYTORIN and ZETIA being acquired by Merck or REMICADE reverting back to Centocor. The change in control provision relating to VYTORIN and ZETIA is included in the contract with Merck, filed as Exhibit 10(r) to Schering-Plough's 2007 10-K/A, and the change of control provision relating to REMICADE is contained in the contract with Centocor, filed as Exhibit 10(v) to Schering-Plough's 2007 10-K/A.

Cholesterol Franchise

Schering-Plough's cholesterol franchise products, VYTORIN and ZETIA, are managed through a joint venture between Schering-Plough and Merck for the treatment of elevated cholesterol levels in all markets outside Japan. ZETIA is Schering-Plough's novel cholesterol absorption inhibitor. VYTORIN is the combination of ZETIA and Zocor (simvastatin), a statin medication developed by Merck. The financial commitment to compete in the cholesterol-reduction market is shared with Merck, and profits from the sales of VYTORIN and ZETIA are also shared with Merck. The operating results of the joint venture with Merck are recorded using the equity method of accounting.

The cholesterol-reduction market is the single largest pharmaceutical category in the world. VYTORIN and ZETIA are competing in this market. Global total combined sales of VYTORIN and ZETIA for the three and nine months ended September 30, 2008, decreased 13 percent and 6 percent, respectively, as compared to the three and nine months ended September 30, 2007. During the three and nine months ended September 30, 2008, total combined sales of VYTORIN and ZETIA in the U.S. declined 29 percent and 20 percent, respectively, as compared to the three and nine months ended September 30, 2007. During the three and nine months ended September 30, 2008, total combined sales of VYTORIN and ZETIA outside the U.S. increased 37 percent and 40 percent, respectively, as compared to the three and nine months ended September 30, 2007. As of September 2008, total combined prescription share for VYTORIN and ZETIA in the U.S. was down approximately six market share points versus December 2007 from 16.9 percent to 10.9 percent. Media reaction to the release of the results of the ENHANCE clinical trial in early 2008 led some commentators to call for the use of other products, rather than VYTORIN and ZETIA. Continued reductions in the sales and/or market share of Schering-Plough's cholesterol franchise would have a significant impact on Schering-Plough's consolidated results of operations and cash flows. In the past, Schering-Plough's profitability has been largely dependent upon the performance of the cholesterol franchise; while performance of the cholesterol franchise is still material to Schering-Plough, as the product diversity has become stronger (through the OBS acquisition as well as development of other Schering-Plough products) the dependence on the cholesterol franchise is lessening.

Japan is not included in the joint venture with Merck. In the Japanese market, Bayer Healthcare is co-marketing Schering-Plough's cholesterol-absorption inhibitor, ZETIA, which was approved in Japan in April 2007 as a monotherapy and co-administered with a statin for use in patients with hypercholesterolemia, familial hypercholesterolemia or homozygous sitosterolemia. ZETIA was launched in Japan during June 2007. Schering-Plough's sales of ZETIA in Japan under the co-marketing agreement with Bayer Healthcare are recognized in net sales and included in Other Pharmaceuticals.

License Arrangements with Centocor

REMICADE is prescribed for the treatment of inflammatory diseases such as rheumatoid arthritis, early rheumatoid arthritis, psoriatic arthritis, Crohn's disease, ankylosing spondylitis, plaque psoriasis and ulcerative colitis. REMICADE is Schering-Plough's second largest marketed pharmaceutical product line (after the cholesterol franchise). REMICADE is licensed from and manufactured by Centocor, Inc., a Johnson & Johnson company. During 2005, Schering-Plough exercised an option under its contract with Centocor for license rights to develop and commercialize golimumab, a fully human monoclonal antibody which has been filed for approval in Europe. Schering-Plough has exclusive marketing rights to both products outside the U.S., Japan and certain Asian markets. In December 2007, Schering-Plough and Centocor revised their distribution agreement regarding the development, commercialization and distribution of both REMICADE and golimumab, extending Schering-Plough's rights to exclusively market REMICADE to match the duration of Schering-Plough's exclusive marketing rights for golimumab. Effective upon regulatory approval of golimumab in the EU, Schering-Plough's marketing rights for both products will now extend for 15 years after the first commercial sale of golimumab within the EU. Centocor will receive a progressively increased share of profits on Schering-Plough's distribution of both products in the Schering-Plough marketing territory between 2010 and 2014, and the share of profits will remain fixed thereafter for the remainder of the term. The changes to the duration of REMICADE marketing rights and the profit sharing arrangement for the products are all conditioned on approval of golimumab being granted prior to September 1, 2014. Schering-Plough may independently develop and market golimumab for a Crohn's disease indication in its territories, with an option for Centocor to participate. In addition, Schering-Plough and Centocor agreed to utilize an autoinjector device in the commercialization of golimumab and further agreed to share its development costs.

Manufacturing, Sales and Marketing

Schering-Plough supports commercialized products with manufacturing, sales and marketing efforts. Schering-Plough is also moving forward with additional investments to enhance its infrastructure and business, including capital expenditures for the drug development process (where products are moved from the drug discovery pipeline to markets), information technology systems, and post-marketing studies and monitoring.

Schering-Plough continually reviews the business, including manufacturing operations, to identify actions that will enhance long-term competitiveness. However, Schering-Plough's manufacturing cost base is relatively fixed, and actions to significantly reduce Schering-Plough's manufacturing infrastructure, including specific reviews of Schering-Plough's manufacturing operations that will be made as part of PTP involve complex issues. As a result, shifting products between manufacturing plants can take many years due to construction and regulatory requirements, including revalidation and registration requirements. Future events and decisions may lead to asset impairments or related costs.

Regulatory and Competitive Environment

Schering-Plough is subject to the jurisdiction of various national, state and local regulatory agencies. Regulatory compliance is complex and costly, impacting the timing needed to bring new drugs to market and to market drugs for new indications.

Schering-Plough engages in clinical trial research in many countries around the world. Research activities must comply with stringent regulatory standards and are subject to inspection by the U.S., the EU, and local country regulatory authorities. Schering-Plough is subject to pharmacovigilance reporting requirements in many countries and other jurisdictions, including the U.S., the EU, and the EU member states. Clinical trials

and post-marketing surveillance of certain marketed drugs of competitors within the industry have raised safety concerns that have led to recalls, withdrawals or adverse labeling of marketed products.

A number of intermediaries are involved between drug manufacturers, such as Schering-Plough, and patients who use the drugs. These intermediaries impact the patient's ability, and their prescribers' ability, to choose and pay for a particular drug. These intermediaries include health care providers, such as hospitals and clinics; payors and their representatives, such as employers, insurers, managed care organizations and governments; and others in the supply chain, such as pharmacists and wholesalers. Further, in the U.S., many of Schering-Plough's pharmaceutical products are subject to increasingly competitive pricing as certain of the intermediaries (including managed care groups, institutions and government agencies) seek price discounts. In most international markets, Schering-Plough operates in an environment of government-mandated cost-containment programs. Also, the pricing, sales and marketing programs and arrangements, and related business practices of Schering-Plough and other participants in the health care industry are under continued scrutiny from federal and state regulatory, investigative, prosecutorial and administrative entities.

The market for pharmaceutical products is competitive. Schering-Plough's operations may be affected by technological advances of competitors, industry consolidation, patents granted to competitors, loss of patent protection due to challenges by competitors, competitive combination products, new products of competitors, new information from clinical trials of marketed products or post-marketing surveillance and generic competition as Schering-Plough's products mature.

OBS Acquisition

On November 19, 2007, Schering-Plough acquired OBS for a purchase price of approximately Euro 11 billion in cash, or approximately $16.1 billion.

Commencing from the acquisition date, OBS' assets acquired and liabilities assumed, as well as the results of OBS' operations, are included in Schering-Plough's consolidated financial statements.

The impact of purchase accounting, based on a preliminary valuation, resulted in the following non-cash pre-tax items during the three and nine months ended September 30, 2008:

• Amortization of inventory adjusted to fair value, which totaled approximately $1.1 billion, will be charged to cost of sales over an approximate one-year period from the acquisition date ($78 million and $840 million for the three and nine months ended September 30, 2008, respectively).

• Amortization of acquired intangible assets adjusted to fair value, which totaled $6.8 billion will be amortized over a weighted-average life of 15 years to cost of sales ($136 million and $407 million for the three and nine months ended September 30, 2008, respectively).

• Incremental depreciation relating to the adjustment in fair value on property, plant and equipment of approximately $900 million that will be depreciated over the lives of the applicable plant and equipment primarily to cost of sales ($11 million and $27 million for the three and nine months ended September 30, 2008, respectively).

DISCUSSION OF OPERATING RESULTS

The results of operations for the three and nine months ended September 30, 2008 discussed below, unless otherwise noted, include sales of products and expenses from OBS as well as certain non-cash items relating to purchase accounting associated with the OBS acquisition.

Net Sales

A significant portion of net sales is made to major pharmaceutical and health care product distributors and major retail chains in the U.S. Consequently, net sales and quarterly growth comparisons may be affected by fluctuations in the buying patterns of major distributors, retail chains and other trade buyers. These fluctuations may result from seasonality; pricing; wholesaler, retail and trade buying decisions; changes in overall demand factors or other factors. In addition to these fluctuations, sales of many pharmaceutical

products in the U.S. are subject to increased pricing pressure from managed care groups, institutions, government agencies, and other groups seeking discounts. Schering-Plough and other pharmaceutical manufacturers in the U.S. market are also required to provide statutorily defined rebates to various government agencies in order to participate in the Medicaid program, veterans' health care programs and other government-funded programs. The Medicare Prescription Drug Improvement and Modernization Act of 2003 contains a prescription drug benefit for individuals who are eligible for Medicare and has resulted in increased use of generics and increased purchasing power of those negotiating on behalf of Medicare recipients. In most international markets, Schering-Plough operates in an environment where governments have mandated cost-containment programs, placed restrictions on physician prescription levels and patient reimbursements, emphasized greater use of generic drugs and enacted across-the-board price cuts as methods to control costs.

Consolidated Net sales for the three months ended September 30, 2008 totaled $4.6 billion, an increase of $1.8 billion or 63 percent compared with the same period in 2007, including an estimated impact of 6 percent from foreign exchange on stand-alone Schering-Plough net sales. For the nine months ended September 30, 2008, consolidated Net sales totaled $14.2 billion, an increase of $5.2 billion or 58 percent as compared to the same period in 2007, including an estimated impact of 7 percent from foreign exchange on stand-alone Schering-Plough net sales. The impact of currency is more pronounced on products and businesses that are concentrated in Europe.

Consolidated Net sales for the three and nine months ended September 30, 2008 included $1.4 billion and $4.2 billion of net sales of products from OBS. The increase in net sales also reflects the growth in sales volumes of human prescription pharmaceutical products such as REMICADE and TEMODAR as well as Animal Health and Consumer Health Care products.

For the three and nine months ended September 30, 2008, Net sales outside the U.S. totaled $3.2 billion and $9.9 billion, respectively. Net sales outside the U.S. approximated 70 percent of consolidated net sales for both periods.

Net sales for the three and nine months ended September 30, 2008 and 2007 were as follows:

                                           Three Months Ended                                Nine Months Ended
                                              September 30,                                    September 30,
                                                                Increase                                         Increase
                                  2008             2007        (Decrease)           2008            2007        (Decrease)
                                 (Dollars in millions)            (%)             (Dollars in millions)            (%)

PRESCRIPTION PHARMACEUTICALS   $     3,539       $  2,291               54 %    $     10,798       $ 7,209               50 %
REMICADE                               564            426               32 %           1,627         1,193               36 %
TEMODAR                                273            215               27 %             760           627               21 %
NASONEX                                258            242                6 %             876           821                7 %
PEGINTRON                              235            221                6 %             689           672                3 %
CLARINEX/AERIUS                        176            171                3 %             630           625                1 %
FOLLISTIM/PUREGON                      142              -                -               450             -                -
NUVARING                               118              -                -               330             -                -
CLARITIN Rx                             87             83                5 %             326           297               10 %
INTEGRILIN                              84             78                7 %             236           241               (2 %)
CAELYX                                  80             64               24 %             232           191               22 %
ZEMURON                                 72              -                -               202             -                -
AVELOX                                  65             78              (17 %)            274           269                2 %
REBETOL                                 63             60                5 %             193           206               (6 %)
REMERON                                 61              -                -               190             -                -
Other Pharmaceuticals                1,261            653               93 %           3,783         2,067               83 %
ANIMAL HEALTH                          759            248              206 %           2,299           744              209 %
CONSUMER HEALTH CARE                   278            273                2 %           1,057         1,012                4 %
OTC                                    160            162               (1 %)            550           521                6 %
. . .