Merck Well-Positioned for Further Growth

Mer­ck, expects to deliv­er con­tin­ued prof­itable growth in the com­ing years despite a chal­leng­ing mar­ket envi­ron­ment. Today at its vir­tu­al Cap­i­tal Mar­kets Day, the com­pa­ny pre­sent­ed to ana­lysts and investors the progress made in real­iz­ing the growth and expan­sion phase of its strat­e­gy for the peri­od until 2022.

“Our ambi­tion is clear: We want to be the vibrant sci­ence and tech­nol­o­gy com­pa­ny. We have made sig­nif­i­cant progress on this jour­ney in recent years,” explained Ste­fan Oschmann, Chair­man of the Exec­u­tive Board and CEO of Mer­ck. “In recent months, the strengths of our busi­ness mod­el with three inno­va­tion-dri­ven busi­ness sec­tors have become par­tic­u­lar­ly evi­dent dur­ing the Covid-19 cri­sis,” said Oschmann. As pre­vi­ous­ly report­ed, Mer­ck expects slight to mod­er­ate organ­ic growth of net sales and EBITDA pre in 2020. The com­pa­ny con­tin­ues to expect Group sales of between € 16.9 bil­lion and € 17.7 bil­lion as well as EBITDA pre in a range of € 4.45 bil­lion to € 4.85 billion.

All three busi­ness sec­tors of Mer­ck have moved for­ward in deliv­er­ing on their strate­gic pri­or­i­ties in recent years. Health­care has seen increas­ing sales con­tri­bu­tions from the med­i­cines Baven­cio and Maven­clad and has made good progress with its devel­op­ment pipeline. The Life Sci­ence busi­ness sec­tor con­tin­ues to deliv­er above-mar­ket growth and has been oper­at­ing more prof­itably than most of its com­peti­tors. With the acqui­si­tion of Ver­sum Mate­ri­als, Per­for­mance Mate­ri­als has shift­ed its port­fo­lio to focus on the high-growth semi­con­duc­tor busi­ness and has gen­er­at­ed high mar­gins. “The trans­for­ma­tion of Mer­ck in recent years and our clear focus on sci­ence and tech­nol­o­gy have paid off. All our busi­ness sec­tors oper­ate in high­ly attrac­tive mar­kets. That’s why this com­pa­ny has excel­lent prospects for the future,” said Oschmann. “Our Health­care pipeline, our Process Solu­tions busi­ness with prod­ucts and ser­vices for drug man­u­fac­tur­ing and our Semi­con­duc­tor Solu­tions busi­ness will be the main growth dri­vers of Mer­ck in the com­ing years.” Mer­ck will con­tin­ue to stand for steady earn­ings growth, high mar­gins and a low risk pro­file, Oschmann added.

Fol­low­ing the Ver­sum acqui­si­tion last year, Mer­ck is giv­ing pri­or­i­ty to organ­ic growth while rapid­ly low­er­ing its debt and pur­su­ing a sus­tain­able cul­ture of cost con­scious­ness in the peri­od until 2022. In addi­tion, the com­pa­ny announced a fur­ther devel­op­ment of its port­fo­lio strat­e­gy. “We don’t rule out large trans­for­ma­tive deals as of 2022, yet in view of our strong busi­ness port­fo­lio, at present the like­li­hood is high­er that we will com­ple­ment our busi­ness­es through a num­ber of small­er to medi­um-sized acqui­si­tions after 2022,” said Oschmann.

For the Health­care busi­ness sec­tor, Mer­ck under­scored its ambi­tion to achieve around € 2 bil­lion in sales from its pipeline by 2022. In view of high­ly promis­ing devel­op­ment projects, Mer­ck also sees fur­ther sig­nif­i­cant growth poten­tial beyond 2022. The com­pa­ny expect sales per­for­mance in its core busi­ness to remain at least sta­ble through to 2022.

In recent years, Health­care has accel­er­at­ed its organ­ic growth, with increas­ing con­tri­bu­tions from Maven­clad and Baven­cio. Used to treat cer­tain forms of mul­ti­ple scle­ro­sis, Maven­clad has already been approved in 80 coun­tries, includ­ing the Unit­ed States. In spring, the mar­ket envi­ron­ment for Maven­clad was tem­porar­i­ly heav­i­ly impact­ed by the Covid-19 cri­sis. How­ev­er, signs of recov­ery emerged in June.

On June 30, the U.S. Food and Drug Admin­is­tra­tion (FDA) approved the immuno-oncol­o­gy med­i­cine Baven­cio for the main­te­nance treat­ment of patients with local­ly advanced or metasta­t­ic urothe­lial car­ci­no­ma (UC) that has not pro­gressed with first-line plat­inum-con­tain­ing chemother­a­py. Just a few days ear­li­er, on June 22, Mer­ck announced that the Euro­pean Med­i­cines Agency (EMA) had val­i­dat­ed and accept­ed for review the Type II vari­a­tion appli­ca­tion for Baven­cio for first-line main­te­nance treat­ment of patients with local­ly advanced or metasta­t­ic UC.

In March, the Japan­ese Min­istry of Health, Labour and Wel­fare (MHLW) approved the oncol­o­gy drug tepo­tinib for the treat­ment of patients with unre­sectable, advanced or recur­rent non-small cell lung can­cer (NSCLC) with METex14 skip­ping alter­ations. More­over, on August 25 Mer­ck announced that the FDA had accept­ed and grant­ed Pri­or­i­ty Review to the New Drug Appli­ca­tion for tepo­tinib for the treat­ment of adult patients with metasta­t­ic NSCLC.

Mer­ck is mak­ing excel­lent progress with its devel­op­ment pipeline. In May, pos­i­tive results from the Phase II open-label exten­sion study were pre­sent­ed on the long-term effi­ca­cy and safe­ty pro­file of inves­ti­ga­tion­al evo­bru­ti­nib in adult patients with relaps­ing mul­ti­ple scle­ro­sis. In June, the MHLW grant­ed SAKIGAKE ’fast-track’ des­ig­na­tion for the inves­ti­ga­tion­al bifunc­tion­al fusion pro­tein bin­tra­fusp alfa as a poten­tial treat­ment for patients with bil­iary tract can­cer. Mer­ck is cur­rent­ly inves­ti­gat­ing bin­tra­fusp alfa in mul­ti­ple clin­i­cal trials.

For the Life Sci­ence busi­ness sec­tor, Mer­ck expects aver­age annu­al organ­ic sales growth of 6% to 9% in the medi­um term, sig­nif­i­cant­ly above the expect­ed growth of the life sci­ence indus­try of 5% to 6%. For the three Life Sci­ence busi­ness units, name­ly Process Solu­tions, Applied Solu­tions and Research Solu­tions, the com­pa­ny expects organ­ic growth to be stronger than that of the respec­tive mar­ket. In the com­ing years, the mar­gin of Life Sci­ence is also like­ly to be sig­nif­i­cant­ly high­er than the mar­ket aver­age. This above-mar­ket growth is based on an advan­ta­geous port­fo­lio as well as con­tin­ued very favor­able busi­ness performance.

The Process Solu­tions busi­ness unit, which mar­kets prod­ucts and ser­vices for the entire phar­ma­ceu­ti­cal pro­duc­tion val­ue chain, is like­ly to remain the key dri­ver of sales growth with­in Life Sci­ence. For Process Solu­tions, Mer­ck expects annu­al organ­ic sales growth in the low teens per­cent­age range in the com­ing years. The busi­ness is ben­e­fit­ing from strong growth of the mar­ket for bio­phar­ma­ceu­ti­cals, the increas­ing num­ber of active phar­ma­ceu­ti­cal ingre­di­ents as well as the rapid growth of new ther­a­peu­tic approach­es such as gene and cell ther­a­pies. In April, Mer­ck announced plans to expand its site in Carls­bad, Cal­i­for­nia, USA, by adding a sec­ond viral vec­tor facil­i­ty to sup­port viral and gene ther­a­py man­u­fac­tur­ing. In Sep­tem­ber, the com­pa­ny announced plans to expand its facil­i­ty near Madi­son, Wis­con­sin, USA, where it man­u­fac­tures anti­body-drug conjugates.

Mer­ck expects annu­al organ­ic sales growth in the low sin­gle-dig­it per­cent­age range in the com­ing years in its Research Solu­tions busi­ness unit, which pro­vides prod­ucts and ser­vices to sup­port life sci­ence research for phar­ma­ceu­ti­cal, biotech­nol­o­gy and aca­d­e­m­ic research lab­o­ra­to­ries. In the com­ing years, the busi­ness should ben­e­fit from increas­ing research activ­i­ties in the biotech sec­tor, among oth­er things. For the Applied Solu­tions busi­ness unit, which offers a broad range of prod­ucts for researchers as well as indus­tri­al and sci­en­tif­ic lab­o­ra­to­ries, Mer­ck expects annu­al organ­ic sales growth in the mid sin­gle-dig­it per­cent­age range for the com­ing years, among oth­er things thanks to high­er demand for test­ing in many fields, for exam­ple food safety.

With the acqui­si­tion of Ver­sum, the Per­for­mance Mate­ri­als busi­ness sec­tor achieved a key mile­stone in its Bright Future trans­for­ma­tion pro­gram last year. Mer­ck is mak­ing good progress with the inte­gra­tion of Ver­sum. The com­pa­ny con­firms the cost syn­er­gy tar­get of € 75 mil­lion as of 2022 and expects faster real­iza­tion this year, along with addi­tion­al sales syn­er­gies as of next year.

The busi­ness port­fo­lio is now clear­ly tar­get­ed to the elec­tron­ic mate­ri­als field. In the first half of 2020, the Semi­con­duc­tor Solu­tions busi­ness unit already account­ed for 56% of Per­for­mance Mate­ri­als net sales. Against this back­ground, for the Per­for­mance Mate­ri­als busi­ness sec­tor Mer­ck expects aver­age annu­al organ­ic sales growth of 3% to 4% along with an EBITDA pre mar­gin of around 30% in the medi­um term.

For Semi­con­duc­tor Solu­tions, Mer­ck expects annu­al organ­ic sales growth in the mid to high sin­gle-dig­it per­cent­age range in the com­ing years. Semi­con­duc­tor Solu­tions is thus expect­ed to be the fastest-grow­ing busi­ness unit of Per­for­mance Mate­ri­als. In addi­tion to the expect­ed mar­ket growth, the busi­ness unit should ben­e­fit from its favor­able prod­uct and ser­vice port­fo­lio as well as from the syn­er­gies aris­ing from the Ver­sum integration.

In view of the con­tin­u­ing price pres­sure in the Liq­uid Crys­tals busi­ness, Mer­ck expects an annu­al organ­ic decline in sales in the low sin­gle-dig­it per­cent­age range for the Dis­play Solu­tions busi­ness unit in the com­ing years. Dis­play Solu­tions com­pris­es the busi­ness with liq­uid crys­tal and OLED mate­ri­als, pho­tore­sists and liq­uid crys­tal win­dows. By con­trast, the com­pa­ny fore­sees annu­al sales growth in the low sin­gle-dig­it per­cent­age range for its Sur­face Solu­tions busi­ness unit in the com­ing years. Sur­face Solu­tions offers func­tion­al and dec­o­ra­tive solu­tions for auto­mo­tive coat­ings, cos­met­ics and indus­tri­al applications.