Merck KGaA’s Strategic Roadmap

Stefan Oschmann, chairman of the Executive Board and CEO of Merck KGaA, recently outlined the company’s progress in meeting its longer-term strategic goals. So how is the company doing?

The executive has ambitious plans with the goal of generating new sales of EUR 2 billion ($2.2 billion) from its pharmaceutical pipeline by 2022. In its life-sciences business, which includes the $17 billion acquisition of Sigma-Aldrich in 2015, the company expects to achieve total synergies of EUR 280 million ($308 million) by 2018 to help drive top-line growth. DCAT Value Chain Insights takes an inside look into Merck KGaA’s strategic roadmap..

Inside Merck KGaA
Stefan Oschmann, chairman of the Executive Board and CEO of Merck KGaA, outlined the key progress and goals of the company at an analysts’ and investors’ meeting held earlier this month. “We firmly believe that we will meet the objectives we have set for 2018,” said Oschmann, in a company statement. “We have focused our pharmaceutical pipeline and continuously developed it further. Currently, we have one product in regulatory review. We are vigorously driving the integration of Sigma-Aldrich forward and expect to even exceed the originally planned synergies since additional top-line synergies are being generated… At Group level, we are aiming to swiftly reduce our debt from the Sigma-Aldrich acquisition.”

Inside Merck KGaA’s healthcare business
In the company’s healthcare business sector, Oschmann pointed out that the company’s base business grew has grown organically in each of the past 20 quarters due to successful lifecycle management and product repatriations. This includes, for example, the termination of the co-promotion of Merck KGaA’s Rebif (interferon beta-1), a drug to treat relapsing forms of a relapsing multiple sclerosis, in the United States with Pfizer.

Additionally, Merck KGaA, is counting on its pharmaceutical pipeline, and starting in 2017, aims to gain approval of one medicine or new indication every year. Up until 2022, the company expects to generate new sales of around EUR 2 billion ($2.2 billion) with products from its pharmaceutical pipeline. In the course of 2016 thus far, the company has filed for regulatory approval of cladribine tablets for treating multiple sclerosis. Furthermore, the company is preparing its regulatory submission in 2016 of the immuno-oncological antibody, avelumab, in metastatic Merkel cell carcinoma, an aggressive form of skin cancer. Since October 2015, the company has advanced or is about to advance 20 projects into the next phase of clinical development. The company is focusing its drug-discovery efforts on three therapeutic areas: immunology, immuno-oncology, and oncology.

Merck KGaA’s healthcare segment consists of four businesses: biopharmaceuticals, consumer health, biosimilars, and Allergopharma, a Merck company specializing in allergen immunotherapy. The present biopharmaceuticals business was formed in 2007 with the acquisition of the Swiss biopharmaceutical company Serono SA, which was integrated stepwise into the company’s prescription drug business. Over the past several years, Merck KGaA has overhauled its healthcare business and is now focusing on executing its three-pronged strategy, namely driving key pipeline projects such as the investigational cancer immunotherapy, avelumab; maximizing its existing portfolio with drugs such as Rebif and its oncology drug Erbitux (cetuximab), respectively the company’s number one and two top-selling drugs; as well as expanding further in growth markets. Overall, net sales of the company’s healthcare business sector increased in 2015 by 4.7% to EUR 6.9 billion ($7.7 billion). Sales of Rebif, which is used to treat relapsing forms of multiple sclerosis, declined organically by –10.7% in 2015 to EUR $1.8 billion ($1.97 billion) owing to continued competitive pressure from oral formulations. The oncology drug Erbitux posted sales of EUR 899 million ($986 million), and sales of its recombinant hormone used in the treatment of infertility, Gonal-f, had sales of EUR 685 million ($751 million).

Key to Merck KGaA’s growth strategy in biopharmaceuticals is the development of its immuno-oncology pipeline. In November 2014, the company formed a global strategic alliance with Pfizer to develop and commercialize avelumab, an investigational anti-PD-L1 antibody initially discovered by Merck KGaA and currently in development as a potential treatment for multiple tumor types. The drug is part of the immunotherapy alliance under which the companies will collaborate on up to 20 high priority immuno-oncology clinical development programs, including combination trials. If successful, the companies expect the first potential commercial launch for avelumab in 2017 and are working toward at least one additional potential launch per year through 2022 as part of the alliance. Also, as part of the strategic alliance, Merck KGaA will co-promote Pfizer’s anaplastic lymphoma kinase (ALK) inhibitor Xalkori (crizotinib), a medicine to treat ALK+ metastatic non-small cell lung cancer in the United States and several other key markets. In addition, Merck KGaA is developing its investigational molecule, M7824, a potential first-in-class bi-functional immunotherapy designed to simultaneously block two immuno-inhibitory pathways that are commonly used by cancer cells to evade the immune system, thereby controlling tumor growth by restoring and enhancing anti-tumor immune response, and an alternative therapy to anti-PD-1/anti-PD-L1 and other immunotherapies.

The other pieces of Merck KGaA’s biopharmaceutical portfolio include drugs to treat infertility, including recombinant versions of three hormones needed to treat infertility, as well as its general medicine franchise, which mainly includes brands to treat cardiometabolic diseases. No longer patent-protected, these products include Glucophage (metformin) for treating Type 2 diabetes and Concor (bisoprolol), a beta-blocker for chronic cardiovascular diseases such as hypertension, as well as Euthyrox (levothyroxine) for treating hypothyroidism. Part of the company’s strategy is to position its general medicines portfolio in emerging markets, and to that end formed a collaboration with Lupin Ltd. of India to broaden its general medicine portfolio.

For its consumer health business, the company is pursuing what it calls the “3 x 3 Strategy.” The aim is to invest in about 15–20 key countries to be present in each with at least three leading brands and to achieve a respective local market share of at least 3%. The company aims to achieve this by organic growth, geographic expansion and eventually smaller, tactical acquisitions of brands which fit into the strategy and ideally into the existing product categories.

In biosimilars, the company is developing a biosimilars portfolio focused on oncology and inflammatory disorders, through both in-house research and development expertise in biologics, and partnerships with other biosimilar players. The initiation of Phase III trials is planned for 2015/2016 onwards. The company has also established strategic alliances with Dr. Reddy’s in India to co-develop several oncology compounds and with Bionovis in Brazil to supply the Brazilian market with biological products under the Product Development Partnership (PDP) policy of the Brazilian Ministry of Health.

Allergopharma of Merck KGaA specializes in allergen immunotherapy (AIT). AIT (hyposensitization, desensitization, specific immunotherapy) is a causal therapy for treating allergies to unavoidable allergens. AIT is primarily carried out by physicians who specialize in allergies, such as ENT doctors, dermatologists, pediatricians, and pulmonologists. Allergopharma provides individual allergen extracts on a named patient basis, which are needed to treat less frequent allergies. The products are manufactured in a facility in Reinbek near Hamburg, Germany and are provided to more than 20 markets. The company plans to expand production in 2016.

Inside Merck KGaA’s life-sciences business
Already positioned in the market for life-sciences products and service through Merck Millipore/EMD Millipore, Merck KGaA expanded its position with the $17 billion acquisition of Sigma-Aldrich in 2015 and later rebranding its life-sciences business as MilliporeSigma. With the acquisition of Sigma-Aldrich in 2015, Merck KGaA’s life-sciences business increased 25.1% to EUR 3.4 billion ($3.7 billion). This was attributable not only to strong organic growth of 6.5% and favorable exchange rate effects of 8.4%, but mainly to acquisition-related increases of 10.2% resulting from the purchase of Sigma-Aldrich.

Earlier this month at the investors’ and analysts’ day, the company said it expects to realize additional synergies from the Sigma-Aldrich acquisition. At the end of 2016, the company will already have leveraged EUR 105 million ($115 million) as compared with the originally planned amount of EUR 90 million ($99 million) in annually recurring cost synergies. This will be complemented by previously unplanned top-line synergies, which by the end of 2018 are expected to contribute an additional EUR 20 million ($22 million) to earnings. Consequently, total synergies from the acquisition will amount to EUR 280 million ($307 million) instead of originally EUR 260 million ($285 million) per year. The additional top-line synergies will stem partly from the strong e-commerce platform of legacy SigmaAldrich, which now covers the enlarged product portfolio resulting from the acquisition. Complementary customer relationships and regional synergies are also expected to lead to higher sales than initially expected.

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