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Germany: Pharma Business

Merck Generates Strong Sales Growth in the Second Quarter

| Editor: Alexander Stark

“For the full year 2019, we continue to assume growth for the Group key figures”, says Stefan Oschmann, Chairman of the Executive Board and CEO of Merck.
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“For the full year 2019, we continue to assume growth for the Group key figures”, says Stefan Oschmann, Chairman of the Executive Board and CEO of Merck. (Source: Merck)

Merck 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 science and technology company also confirmed its full-year forecast for 2019.

Darmstadt/Germany — Merck achieved sales growth in all business sectors and regions, the company announced. The jump in earnings was due to the very good business performance of Life Science as well as the milestone payments in Healthcare. Stefan Oschmann, Chairman of the Executive Board and CEO, continues to assume growth for the group's key figures for the full year 2019.

In the second quarter, Merck generated net sales growth of 6.9 % to $ 4.4 billion (Q2 2018: $ 4.1 billion). Organic sales growth amounted to 5.6 %. The company 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 US dollar and the Japanese yen, as well as a slightly negative portfolio effect of -0.2 %.

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Ebitd pre, the Group’s most important earnings indicator, rose sharply by 23.8 % to $ 1.2 billion in the second quarter (Q2 2018: $ 1 billion). 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 $ 685 million (Q2 2018: $435 million). Net income of Merck thus soared in the second quarter by 90.8 % to $ 522 million (Q2 2018: $ 274 million).

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 group rose by 7.2 % to $ 8.55 billion (January-June 2018: $ 8 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 $ 2.3 billion in the first six months of 2019 (January-June 2018: $ 2.1 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 $ 2.96 (January-June 2018: $ 2.84).

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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 $ 1.9 billion (Q2 2018: $ 1.77 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.

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 $ 586 million (Q2 2018: $ 420 million). It included multiple milestone payments. On May 15, the US 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, the company received a milestone payment of around $ 39 million from its alliance partner Pfizer. The upfront payment amounting to $ 332.8 million from the alliance with Glaxo Smith Kline to co-develop and commercialize the immunotherapy bintrafusp alfa also had a positive effect of $ 34.4 million in the second quarter. Merck also received a milestone payment of $ 83 million from Bio Marin Pharmaceutical in connection with the sale of the rights to Palynziq (Peg-Pal) in 2016.

Life Science Increases Profitability

In the second quarter, the Life Science business sector generated very strong organic sales growth of 9.0 %, which was driven by all three business units. Favorable exchange rate effects increased sales by 2.1 %; the divestment of the Flow Cytometry business lowered sales by -0.6 %. In the second quarter, sales by the Life Science business sector rose overall by 10.5 % to $ 1.9 billion (Q2 2018: $ 1.66 billion).

The Process Solutions business unit, which markets products and services for the entire pharmaceutical production value chain, generated organic sales growth of 16.2% in the second quarter. Net sales of Process Solutions, including a positive foreign exchange impact of 2.7 %, totaled $ 824 million in the second quarter (Q2 2018: $ 693 million).

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The Research Solutions business unit, which provides products and services to support life science research for pharmaceutical, biotechnological and academic research laboratories, generated organic sales growth of 3.7 %. Including positive foreign exchange effects of 1.9 %, net sales of the business unit amounted to $ 605.6 million (Q2 2018: $ 573.5 million). With its broad range of products for researchers as well as scientific and industrial laboratories, the Applied Solutions business unit recorded organic sales growth of 4.4 % in the second quarter. The divestment of the Flow Cytometry business led to a negative portfolio effect of -2.1 %. Supported by positive foreign exchange effects of 1.6 %, Applied Solutions generated net sales of $ 461 million in the second quarter (Q2 2018: $ 445 million).

In the second quarter, Ebitda pre of the Life Science business sector increased by 18.0 % to $ 591 million (Q2 2018: $ 501 million); this increase was mainly driven by very strong organic growth of 16.7 %. The Ebitda pre margin of Life Science improved to 31.3 % (Q2 2018: 29.3 %).

In the second quarter, net sales of the Performance Materials business sector increased by 0.4 % to $ 653 million (Q2 2018: $ 651 million). An organic decline of -2.0 % was more than offset by positive foreign exchange effects of 2.4 %. Ebitda pre of Performance Materials fell in the second quarter by -2.8 % to $ 210.75 million (Q2 2018: $ 217 million). The organic decline of -8.4 % resulted primarily from price decreases. This was partly offset by favorable foreign exchange effects of 5.6 %. Consequently, at 32.3 %, the Ebitda pre margin was also below the year-earlier figure (Q2 2018: 33.4 %), however it exceeded the long-term target of around 30 %.

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The pharmaceuticals company made progress with its planned acquisitions of the US companies Versum Materials for approximately $ 6.5 billion and Intermolecular for approximately $ 62 million. The company aims to become a leading supplier in the electronic materials sector benefiting from attractive, sustainable growth trends. On June 17, Versum shareholders approved the transaction with Merck at a special meeting; on July 17 Intermolecular shareholders followed suit. Both transactions are expected to close in the second half of 2019, subject to regulatory clearances and the satisfaction of other customary closing conditions.

Following a solid first half that was in line with expectations, Merck continues to forecast for the full year 2019 a moderate organic net sales increase of +3 % to +5 % over the previous year. Overall, net sales of the Merck Group in 2019 are still expected to be in a range between $ 17 billion and $ 17.6 billion (2018:

$ 16,55 billion). According to the company’s expectations, in 2019 Group Ebitda pre will still be in a corridor between $ 4.6 billion and $ 4.8 billion (2018: $ 4.2 billion). The company confirms its original expectation of a strong organic increase of +10 % to +13 % in Ebitda pre compared with the previous year and continues to expect a slightly positive foreign exchange effect of 0 % to +2 % compared with the previous year.

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