Merck, a science and technology company, generated strong net sales growth in the second quarter of 2019, primarily on an organic basis. EBITDA pre grew very strongly and was also driven by organic performance. The firm confirmed its full-year forecast for 2019.

“We achieved sales growth in all business sectors and regions. The jump in earnings was due to the very good business performance of Life Science as well as the milestone payments in Healthcare. These payments are evidence of our successes in developing innovative medicines,” said Stefan Oschmann, Chairman of the Executive Board and CEO of Merck. “For the full year 2019, we continue to assume growth for the Group key figures, namely sales, EBITDA pre and EPS pre.”
In the second quarter, Merck generated net sales growth of 6.9% to € 4.0 billion (Q2 2018: € 3.7 billion). Organic sales growth amounted to 5.6%. Merck grew organically in all regions, with especially strong growth in Asia-Pacific, its largest reporting region. Sales also increased due to slightly positive exchange rate effects of 1.5%, which were primarily due to the U.S. dollar and the Japanese yen, as well as a slightly negative portfolio effect of -0.2%.

EBITDA pre, the Group’s most important earnings indicator, rose sharply by 23.8% to € 1.1 billion in the second quarter (Q2 2018: € 920 million). The increase primarily stemmed from organic growth of 20.3% and was driven by the milestone payments in Healthcare and the very good performance in Life Science. It was supported by positive exchange rate effects of 3.3% and slight portfolio effects of 0.3%. Accordingly, Group EBIT also grew very strongly, increasing by 57.6% to € 618 million (Q2 2018: € 392 million).

Net income of Merck thus soared in the second quarter by 90.8% to € 471 million (Q2 2018: € 247 million). Earnings per share increased to € 1.08 (Q2 2018: € 0.57). Earnings per share pre climbed by 25.2% to € 1.54 (Q2 2018: € 1.23).
Net financial debt of Merck as of June 30 increased by € 1.1 billion over December 31, 2018 to € 7.8 billion (Dec. 31, 2018: € 6.7 billion). The main reasons for this included the first-time application of the new accounting standard IFRS 16 as well as dividend payments. Merck had 53,051 employees worldwide on June 30, 2019, compared with 54,009 on June 30, 2018. The decrease is primarily attributable to the divestment of the Consumer Health business, which closed in December 2018.

All business sectors contribute to sales growth in the first half

In the first six months of 2019, net sales of the Merck Group rose by 7.2% to € 7.7 billion (January-June 2018: € 7.2 billion). This positive sales development was mainly due to the organic sales increase of 5.7%, to which all three business sectors contributed. EBITDA pre rose by 9.6% to € 2.1 billion in the first six months of 2019 (January-June 2018: € 1.9 billion). At 8.9%, organic performance was also a main driver of the increase. The EBITDA pre margin increased slightly to 26.8% (January-June 2018: 26.2%). Earnings per share pre for the first half rose by 4.3% to € 2.67 (January-June 2018: € 2.56).

Healthcare milestone payments reflect R&D achievements

Sales by the Healthcare business sector grew organically in the second quarter by 5.2%. Including slightly positive foreign exchange effects of 0.7%, net sales of Healthcare amounted to € 1.7 billion (Q2 2018: € 1.6 billion). Organic growth was primarily driven by the General Medicine & Endocrinology franchise, Erbitux as well as the two new medicines Mavenclad and Bavencio; furthermore by the Fertility franchise.

Sales of Mavenclad, an oral medicine for the treatment of multiple sclerosis, tripled to € 61 million (Q2 2018: € 20 million), supported by regulatory approval in the United States at the end of March. The good performance of Mavenclad partly offset the declines in sales of Rebif. In the second quarter, sales of Rebif, which is used to treat relapsing forms of multiple sclerosis, declined organically by -16.1%, particularly as a result of the persistently challenging competitive environment in North America. Including currency tailwinds of 2.5%, Rebif sales amounted to € 331 million (Q2 2018: € 383 million). Sales of the immuno-oncology drug Bavencio totaled € 23 million (Q2 2018: € 17 million). Sales of the oncology drug Erbitux grew organically by 5.7%; the addition of Erbitux to the National Reimbursement Drug List in China was a major driver of the good development of Erbitux sales in Asia. Including negative foreign exchange effects, sales amounted to € 212 million (Q2 2018: € 203 million). Gonal-f, the leading recombinant hormone for the treatment of infertility, saw organic growth of 2.8%, generating sales of € 191 million (Q2 2018: € 184 million). The General Medicine & Endocrinology franchise, which commercializes medicines to treat cardiovascular diseases, thyroid disorders, diabetes and growth disorders, among other things, generated very strong organic growth of 10.1%, yielding net sales of € 640 million (Q2 2018: € 580 million). Delivering organic sales growth of 31.9% primarily thanks to demand in China, the diabetes medicine Glucophage was the main driver of this development.

EBITDA pre of Healthcare rose organically in the second quarter by 37.3%. Including a slightly positive exchange rate effect of 2.2%, it amounted to € 528 million (Q2 2018: € 379 million). It included multiple milestone payments. This demonstrates the achievements of Merck in the discovery and development of innovative medicines. On May 15, the U.S. Food and Drug Administration (FDA) granted regulatory approval of Bavencio in combination with axitinib as a first-line therapy in patients with advanced renal cell carcinoma (RCC). For this, Merck received a milestone payment of around € 35 million from its alliance partner Pfizer. The upfront payment amounting to € 300 million from the alliance with GlaxoSmithKline to co-develop and commercialize the immunotherapy bintrafusp alfa also had a positive effect of € 31 million in the second quarter. Merck also received a milestone payment of € 75 million from BioMarin Pharmaceutical in connection with the sale of the rights to Palynziq (Peg-Pal) in 2016.

Lonza reported continued positive momentum in its core healthcare businesses in the first six months of 2019. This has driven 6.4% sales and 7.7% CORE EBITDA growth for the group, resulting in a CORE EBITDA margin of 27.8%. Based on H1 2019 results, Lonza confirms the Full-Year 2019 outlook of mid-to-high single-digit sales growth and a sustained CORE EBITDA margin.

Half-year performance was driven by Lonza’s Pharma Biotech & Nutrition segment achieving 10.8% sales growth and a 33.2% CORE EBITDA margin in an important investment year.

The Specialty Ingredients segment reported a 3.8% decline in sales in H1 2019. However, the CORE EBITDA margin increased by 20bps to 19%, despite headwinds caused by raw material price increases, supply chain challenges and negative cyclical impacts.

All figures relate to Lonza’s continuing operations (excluding the Water Care business unit) in reported currency and are compared with the same period in 2018 on a like-for-like basis (restated Lonza Half-Year 2018 financial results) to reflect adoption of IFRS 15 on revenue from contracts with customers and realignment of segments). Positive development of CORE EBITDA was also supported by the IFRS 16 accounting adjustment on leases, resulting in 40bps incremental margin for Lonza Group.

Pharma Biotech & Nutrition Segment

Lonza Pharma Biotech & Nutrition achieved double-digit sales growth. The newly formed segment, now including the Consumer Health & Nutrition business (formerly part of Specialty Ingredients), delivered CHF 2.1 billion sales in H1 2019 and a CORE EBITDA of CHF 693 million while investing in strategic growth projects.

Lonza confirmed the expansion of its bioconjugation facilities in Visp (CH), together with the successful commercial approval of a third antibody-drug conjugate (ADC) produced at this site. With eleven investigational new drugs (INDs) completed, and now three out of five commercially available ADCs supported by its bioconjugation facility, Lonza sees the need to further expand based on commitments from customers signed. Many bioconjugates are on expedited programs and the existing expertise at the facility, combined with proximity to clinical and commercial manufacturing of antibody, linkers and payload, will reduce risk and increase speed on the path to market for Lonza customers.

Merck, a science and technology company, and the Broad Institute of MIT and Harvard (Boston, Massachusetts) announced an agreement to offer non-exclusive licenses to CRISPR intellectual property (IP) under their respective control for use in commercial research and product development.

“Together with the Broad Institute, we are simplifying the path to licensing CRISPR technology, which will make it more widely available to the global research and discovery community,” said Udit Batra, member of the Merck Executive Board and CEO Life Science. “Through this agreement, we will make it easier for our customers to be successful in their research that shortens drug development timelines for previously untreatable diseases.”

Broad Institute and Merck share the goal of enabling all entities to apply the technology with a wider range of CRISPR tools. To streamline access for scientists, Broad Institute will offer licenses to Merck’s and Broad Institute’s CRISPR IP portfolios to potential licensees for internal research use and for commercial research tools and kits. Under the agreement, companies applying CRISPR in their research and development activities can license both sets of IP through Broad Institute. The framework is designed to allow other key patent holders to participate in the future — either through this framework or via a third-party patent pool or collaboration — to further streamline non-exclusive access to key CRISPR technology.

“We believe that key CRISPR patent holders should come together to simplify and open up access, and this agreement is another example of a partnership that helps maximize and streamline access to these important scientific tools,” said Issi Rozen, Chief Business Officer of the Broad Institute. “Broad Institute already licenses CRISPR non-exclusively for all applications, with the exception of human therapeutics. We are actively working to ensure the widest and simplest possible access to key CRISPR intellectual property.”

The institutions worked together to develop a framework that (i) continues to provide non-exclusive access to Broad-controlled IP co-owned with its collaborators (including Harvard University, the Massachusetts Institute of Technology, New York Genome Center, New York University, The Rockefeller University, the University of Iowa Research Foundation, The University of Tokyo, the Whitehead Institute for Biomedical Research and others) and (ii) provides non-exclusive access to IP from Merck, with certain limitations specific to the Merck IP for creation of rodent models.

Features of the licensing framework:

• Merck’s IP for CRISPR technology, offered under the Sigma-Aldrich portfolio brand, will become available royalty-free to non-profit academic institutions, non-profit business communities and governmental agencies for their internal research, consistent with the Broad Institute’s long-standing practice and requirements.
• Licenses follow Broad Institute’s and Merck’s ethical licensing considerations, which exclude certain CRISPR technology applications, such as any for clinical human germline editing.
• Each organization can continue offering licenses independently, outside of this framework.
• In addition to IP from Broad Institute and Merck, this licensing framework includes certain Broad IP co-owned with multiple other institutions: Harvard University, the Massachusetts Institute of Technology, The Rockefeller University, the University of Iowa Research Foundation, the University of Tokyo, the Whitehead Institute for Biomedical Research and others.

Broad Institute and Merck have each developed guidelines that support research with genome editing under careful consideration of ethical and legal standards. The Broad Institute outlines “institutional policies on IP licensing” on its website. Merck has established an independent, external Bioethics Advisory Panel to provide guidance for research in which its businesses are involved, including research on or using genome editing, and has defined a clear operational position taking into account scientific and societal issues to inform promising therapeutic approaches for use in research and applications.