Fundamental Information about the Group
The Merck Group
Merck is a global corporate group headquartered in Darmstadt, Germany. With a history dating back nearly 350 years, it is the world’s oldest pharmaceutical and chemical company. Merck holds the global rights to the Merck name and brand. The only exceptions are Canada and the United States, where Merck operates as EMD Serono, EMD Millipore und EMD Performance Materials.
Merck’s product portfolio ranges from innovative pharmaceuticals and biopharmaceutical products, to specialty chemicals, high-tech materials and life science tools. Until December 31, 2014, in other words the period covered by this Annual Report, Merck used a reporting structure consisting of four divisions: Merck Serono, Consumer Health, Performance Materials and Merck Millipore. The following presentation also reflects this structure.
In line with its strategic direction effective January 1, 2015, Merck is organized into three business sectors: Healthcare, Performance Materials and Life Science, which comprise the Group’s six businesses. This structure will be used in the financial reports of the Merck Group as of January 1, 2015 and will be reflected for the first time in the report on the first quarter of 2015.
Merck Serono discovers, develops, manufactures and markets innovative pharmaceutical and biological prescription drugs to treat cancer, multiple sclerosis (MS), infertility and growth disorders, as well as certain cardiovascular and metabolic diseases. As the company’s largest division, in 2014 Merck Serono generated 51 % of Group sales and 51 % of EBITDA pre one-time items (excluding Corporate and Other). The present Merck Serono division was formed in 2007 with the acquisition of the Swiss biopharmaceutical company Serono SA, which was integrated stepwise into the prescription drugs business. With headquarters in Darmstadt, Germany, Merck Serono offers leading brands in specialty medicine indications.
Merck Serono commercializes its products worldwide and has a strong presence in established markets. Merck Serono’s products are available in various countries and regions of the world under different brand names.
The regions of Europe and North America contributed 64 % of divisional sales in 2014. In recent years, Merck Serono has steadily expanded its presence in the Emerging Markets region, which accounted for 29 % of the division’s sales in 2014.
Rebif®, Merck Serono’s top-selling product, is used to treat relapsing forms of multiple sclerosis, which is one of the most common neurological diseases among young adults.
Erbitux® is the second best-selling drug in Merck Serono’s product portfolio and its flagship product in Oncology. The product is a standard of care in multiple lines of metastatic colorectal cancer (mCRC) therapy as well as of both recurrent / metastatic and locally advanced squamous cell carcinoma of the head & neck (SCCHN).
On November 17, 2014, Merck Serono entered into a global strategic alliance with Pfizer Inc. to develop and commercialize MSB0010718C, an investigational anti-PD-L1 antibody currently in development by Merck Serono as a potential treatment for multiple tumor types, thereby accelerating the two companies’ presence in immuno-oncology. The two companies have also agreed to combine resources and expertise to advance Pfizer’s preclinical-stage anti-PD-1 antibody into Phase I trials. As part of the strategic alliance, Merck Serono will co-promote Pfizer’s Xalkori®, a medicine to treat non-small cell lung cancer in the United States and several other key markets.
Merck Serono also offers products that help couples to conceive a child and is the only company to offer the most complete and clinically proven portfolio of fertility drugs for every stage of the reproductive cycle, including recombinant versions of the three hormones needed to treat infertility. As a leader and innovator, Merck Serono supports the improvement of success in Assisted Reproductive Technology not only with drugs, but also innovative technologies, for example to assess embryo viability. The products in the Fertility franchise are an important growth driver for Merck Serono. This is due to different factors, such as the increasing demand in emerging markets and the trend of couples postponing childbearing until later in life when natural fertility declines.
The General Medicine franchise mainly includes brands to treat cardiometabolic diseases. Although no longer patent-protected, the excellent brand equity built over decades makes the flagship products cornerstones for the treatment of chronic cardiovascular or metabolic diseases. This applies, for example, to Glucophage® containing the active ingredient metformin, the drug of choice for first-line treatment of type 2 diabetes, as well as to Concor® containing bisoprolol, the leading beta-blocker for chronic cardiovascular diseases such as hypertension, as well as Euthyrox® (levothyroxine) as the leading treatment for hypothyroidism. Particularly in emerging markets, there is a continuous rise in demand for cardiometabolic therapies. This is due to both increasing life expectancy and in part also to growing prosperity in this region, along with the resulting changes in lifestyle and dietary habits. Beyond developing life cycle management products to capitalize on Merck Serono’s strong brand equity, Merck entered into a long-term strategic partnership with Lupin Ltd. of India to broaden the General Medicine portfolio in emerging markets with affordable, high-quality medicines.
Merck Serono is continuously working to improve ways to administer medicines and active ingredients. For several years, Merck Serono has been developing novel injection devices, which make injections more user-friendly and at the same time more reliable for patients than conventional or prefilled syringes. In addition, these products make it easier for health care practitioners and patients to ensure adherence and thus to reach their treatment goals. Examples are the easypod™ electromechanical injection devices for the delivery of Saizen® (somatropin) and RebiSmart™ for Rebif® (interferon beta-1a). Additionally, both easypod™ and RebiSmart™ are able to wirelessly transfer data such as injection times, dates and doses to the Web-based software systems easypod™ connect and MSdialog.
Merck Serono is advancing its research and development (R&D) portfolio across the areas of oncology, immuno-oncology and immunology, and continues to invest in developing programs in multiple sclerosis. With its expertise in discovery and early development, as well as approximately 25 projects in clinical development, Merck Serono is focused on delivering differentiated new therapies to patients with unmet medical needs.
In addition, Merck has two further pharmaceutical business units that operate as independent businesses within the Healthcare business sector since the new organizational structure took effect on January 1, 2015. Allergopharma is specialized in developing high-dose hypoallergenic products for specific immunotherapy and diagnosis of type 1 allergies (such as hay fever or allergic asthma). Biosimilars is developing biological medicines that are similar to an existing registered biological medicine (the “reference medicine”). Merck is moving ahead with the development of a portfolio of biosimilar compounds applicable to various disease areas including oncology and autoimmune diseases. The focus is on developing molecules through in-house research and development as well as through partnerships.
As of January 1, 2014, two product groups were transferred from Merck Serono to Consumer Health. These are Neurobion®, a vitamin B-based analgesic, and Floratil®, a leading brand in the probiotic antidiarrheal segment in Brazil. Sales of the two products totaled € 265 million in 2013. The effects of the product group transfers on Merck Serono’s figures for 2013 are presented in the following table.
Merck Serono → AdjustedShow table
|Total revenues||5,953.6||– 265.2||5,688.4|
|Operating result (EBIT)||893.0||– 99.9||793.1|
|Margin (% of sales)||15.0||13.9|
|Margin (% of sales)||31.7||31.4|
|EBITDA pre one-time items||1,955.0||– 99.9||1,855.1|
|Margin (% of sales)||32.8||32.8|
|Business free cash flow||1,875.7||– 88.6||1,787.1|
Consumer Health manufactures and markets over-the-counter pharmaceuticals. Consumer Health focuses on a number of well-known strategic brands such as Neurobion®, Bion®, Seven Seas®, Nasivin®, Femibion®, and Dolo-Neurobion®, as well as Floratil®, Sangobion®, Vigantoletten®, Apaisyl®, and Kytta®. In 2014, Consumer Health contributed 7 % to Group sales and 5 % to EBITDA pre one-time items (excluding Corporate and Other). Consumer Health has a high market penetration in Europe, Latin America and Southeast Asia, and is generating particularly strong growth in emerging markets, especially in India, Indonesia and Brazil, which have firmly established themselves among the top-ten markets in terms of sales. The key new product launch of Seven Seas® Perfect7® was chosen by the customers of the British health and beauty retailer Boots as the winner of the “2014 Favourite Newcomer” award.
Global megatrends favor the future growth of Consumer Health. People are becoming more health-conscious and concerned with their own physical well-being. Preventive health care and as little invasive medication as possible are becoming increasingly important – in both established and emerging markets, characterized by a growing middle class with specific needs.
On January 1, 2014, two product groups from Merck Serono were transferred to Consumer Health. These are Neurobion®, a leading global brand in the vitamin B segment, and Floratil®, a leading brand in the probiotic antidiarrheal segment in Brazil. The transfer of the two strong brands makes better use of the potential of the consumer-oriented business model of Consumer Health. Furthermore, Consumer Health has considerably strengthened its presence in the Emerging Markets region. This is a step in the journey towards having at least three leading brands and achieving a market share of at least 3 % in each of its key markets. The share of Consumer Health sales accounted for by Emerging Markets increased from 28 % (unadjusted year-earlier figure) to 50 % in 2014 as a result of the product transfer. The effects of the product group transfers on Consumer Health’s figures for 2013 are shown in the following table.
Consumer Health → AdjustedShow table
|Operating result (EBIT)||62.2||99.9||162.1|
|Margin (% of sales)||13.0||21.8|
|Margin (% of sales)||14.9||23.0|
|EBITDA pre one-time items||72.5||99.9||172.4|
|Margin (% of sales)||15.2||23.2|
|Business free cash flow||83.9||88.6||172.5|
Effective May 15, 2014, Uta Kemmerich-Keil took over the leadership of Consumer Health, thus succeeding Udit Batra as President and Chief Executive Officer. Kemmerich-Keil was previously CEO of Allergopharma, the global Allergy business unit.
Performance Materials comprises Merck’s entire specialty chemicals business. The portfolio includes high-tech performance chemicals for applications in fields such as consumer electronics, lighting, coatings, printing technology, plastics, and cosmetics. The acquisition in May 2014 of AZ Electronic Materials (AZ), a leading supplier of high-tech materials for the electronics industry, significantly strengthened Performance Materials.
Performance Materials’ share of Group sales increased in 2014 to 18 % (2013: 15 %) and its share of EBITDA pre one-time items (excluding Corporate and Other) rose to 25 % (2013: 23 %). The results of AZ have been included since May 2, 2014. The EBITDA margin pre one-time items amounted to 43.4 % of sales.
Up until December 31, 2014, i.e. during the reporting period, Performance Materials consisted of four business units: Liquid Crystals, Pigments & Cosmetics, Advanced Technologies and AZ. Effective January 1, 2015, Performance Materials was organized into the following business units: Display Materials, Pigments & Functional Materials, Integrated Circuit Materials comprising the AZ business with specialty chemicals for use in integrated circuits (semiconductors), as well as Advanced Technologies.
The Liquid Crystals business, which became part of the Display Materials business unit on January 1, 2015, generated more than half of Performance Materials’ sales in 2014. With a high market share, Merck has established itself as the global market and technology leader in liquid crystal mixtures. The market is highly consolidated. In addition, barriers to market entry exist due to the technological complexity of liquid crystals and the high quality requirements of customers and consumers. The seven largest LC display manufacturers are primarily among the customers of the Liquid Crystals business. Merck has the broadest product offering in the industry and offers, among other things, liquid crystals based on PS-VA and IPS technologies. This enables Performance Materials to meet individual customer needs and offer solutions for all display sizes, from smartphones and tablet computers to large-size television screens. Merck is pursuing a strategy of leveraging its expertise in liquid crystals in order to develop new fields of application for innovative liquid crystal technology. On July 1, 2014, Merck completely acquired Peer+, a Dutch specialist for smart window technology. The company has meanwhile been fully integrated. With the acquisition of its long-standing cooperation partner Peer+, Merck is further advancing the development of the future-oriented market for liquid crystal windows (LCW). The major innovation of liquid crystal windows lies in their continuously variable switching functionality from light to dark in just seconds. In January 2015, the first LCW panels were installed in the new modular Innovation Center in Darmstadt. At the same time, the new technology is being presented to a wider audience at exhibitions and congresses.
The Pigments & Functional Materials business unit develops and markets a comprehensive product portfolio of decorative effect pigments and functional materials. The effect pigments are primarily used in automotive and industrial coatings, plastics, printing applications, and cosmetics in order to give products a unique shine. Functional materials include laser marking, conductive additives and applications for counterfeit protection, as well as high-quality cosmetic active ingredients, for example for use in skin care, sun protection or insect repellants.
Merck completed the integration of AZ and its global workforce of around 1,100 employees according to schedule by the end of 2014. During the integration phase in 2014, AZ was treated as an independent business unit within Performance Materials for reporting purposes. On January 1, 2015, AZ was transferred to the Integrated Circuit Materials business unit. As a key partner to leading global electronics manufacturers, in 2014 AZ generated nearly 80 % of its sales in Asia. AZ materials are widely used in integrated circuits, flat-panel displays and light-emitting diodes. The AZ portfolio thus optimally complements the range of materials offered by Performance Materials.
The Advanced Technologies business unit invests in future-oriented research and development, supporting the growth and sustainable competitiveness of Performance Materials. The business unit also manufactures and markets materials for organic light-emitting diodes (OLEDs), which are used in new lighting applications and display technologies. The performance of the OLED materials business was very positive in 2014. The demand for OLED materials from Merck increased significantly, particularly in Asian countries. At the same time, the customer base expanded.
Merck Millipore has a broad product and technology portfolio and offers innovative solutions for scientists and engineers in the life science industry. Life science comprises the research branches of natural and engineering sciences concerned with the structure and behavior of living organisms. Merck Millipore’s products and services are used in the research, development and manufacture of biotechnological and pharmaceutical drug therapies, as well as in research and application laboratories. In addition, products and services from Merck Millipore also reach adjacent markets, such as food and beverages. Merck Millipore was established in 2010 following the acquisition of the Millipore Corporation. It is a leading supplier of life science tools.
In 2014, Merck Millipore contributed 24 % to Group sales and 19 % to EBITDA pre one-time items (excluding Corporate and Other). The majority of sales are generated by consumables. This enables Merck Millipore to achieve recurring sales and stable, attractive cash flows in an industry that is characterized by stringent regulatory requirements. A highly diversified and loyal customer base additionally ensures a favorable risk profile. At the same time, Merck Millipore benefits from its broad portfolio and its global reach. Merck Millipore comprises three business areas: Bioscience, Lab Solutions and Process Solutions, as well as multiple specialized business fields.
The main product groups of the Bioscience business area include tools and consumables for filtration and sample preparation, reagents and kits for cell biology experiments, as well as small tools and consumables for cell analysis. With these products, Merck Millipore supports its customers in understanding complex biological systems and identifying new target molecules. The Bioscience business area accounted for 15 % of Merck Millipore’s sales in 2014. Since innovation is a key component of Bioscience, Merck Millipore offers complete and validated applications to make research processes faster and more efficient.
The Lab Solutions business area manufactures products for research as well as analytical and clinical laboratories in a wide variety of industries. The business area accounted for 41 % of Merck Millipore’s sales in 2014. It is one of the leading suppliers of laboratory water equipment, laboratory chemicals and consumables. In addition, Lab Solutions develops and markets test solutions to identify microbial contamination, for example in pharmaceutical products, food and drinking water. For inorganic chemistry, Lab Solutions supplies ultrapure reagents, including salts, acids, caustic alkalis, and buffering agents. It also manufactures reference materials for instrumental analysis and products for inorganic trace analysis. In 2014, the Lab Solutions business area launched new Steritest™ Symbio Pumps for easier, safer and more reliable sterility testing of pharmaceutical products in laminar flow hoods, isolators and cleanrooms. The Steritest™ Symbio Pumps were developed to address stringent pharmaceutical testing requirements. The launch continues Merck Millipore’s 40-year legacy of providing groundbreaking sterility testing products.
Additionally, Merck Millipore underlined its technology leadership with the announcement that its Chromocult® Coliform Agar (CCA) has been used by the International Organization for Standardization (ISO®) as the only suitable culture medium to develop a revised standard for enumerating coliform bacteria and E. coli in water samples to replace Lactose TTC Agar. The completely revised ISO® 9308-1 standard became effective on September 16, 2014.
The Process Solutions business area offers a diversity of products to pharmaceutical and biotechnology companies that enable customers to manufacture large- and small-molecule drugs safely, effectively and cost-efficiently. Accounting for 44 % of Merck Millipore sales in 2014, Process Solutions offers its customers continuous innovations, highest quality standards as well as high reliability of supply. In addition, the business area’s portfolio comprises more than 400 chemicals for the synthesis of active pharmaceutical ingredients as well as drug delivery compounds. The offering in biotech production comprises products supporting cell growth and gene expression, a wide range of filtration systems, as well as salts and sugars. The single-use solutions offered by the Process Solutions business area provide increased operational flexibility to biopharmaceutical customers since they eliminate time- and cost-intensive cleaning procedures. Moreover, these single-use solutions are compatible with various products, reducing investment costs for customers.
On March 17, 2014, Merck Millipore announced a clinical research, licensing and joint development agreement with Sysmex Corporation of Japan. This collaboration will use Merck Millipore’s flow cytometry technology as a platform to accelerate the creation of new, more powerful diagnostic tools for research in blood disorders. If successful, Sysmex and Merck Millipore will collaborate on developing the imaging flow technology platform for future commercialization in hematology.
On May 15, 2014, Udit Batra, who formerly headed Consumer Health, took over the leadership of Merck Millipore, succeeding Robert Yates as President and Chief Executive Officer.
On August 20, 2014, Merck Millipore and Samsung BioLogics announced the signing of a Memorandum of Understanding for a strategic alliance in the biopharmaceutical business. The proposed alliance is intended to encompass a long-term supply agreement in which Merck Millipore will provide raw materials for biopharmaceutical manufacturing.
On September 22, 2014, Merck and Sigma-Aldrich announced that they had entered into a definitive agreement under which Merck will acquire Sigma-Aldrich for US $ 17.0 billion (€ 13.1 billion), establishing one of the leading players in the global life science industry. The closing of the transaction is expected in mid-2015, subject to regulatory approvals and other customary closing conditions.