Merck KGaA Outlines Strategic Priorities for 2016

Merck KGaA held a 2015 Capital Market Day about the strategic priorities that will influence its operating result in 2016. The integration of Sigma-Aldrich as well as the further development of its pharmaceutical pipeline are at the top of the list.

Apart from the expected organic growth of net sales, to which all business sectors are expected to contribute, the acquisition of Sigma-Aldrich will have a positive impact on the operating result before exceptionals (earnings before interest, taxes, depreciation and amortization [EBITDA] pre) next year. This includes expected cost synergies of EUR 90 million ($99 million). At the same time, Merck KGaA is planning additional investments of around EUR 250 million ($275 million) in its pharmaceutical pipeline. In November, the company had forecast EBITDA pre of between EUR 3.58 billion ($3.94 billion) and EUR 3.65 billion ($4.01 billion) for 2015.

“Today, we are a global and modern company with strong businesses, each of which hold market-leading positions and the potential for further growth,” said Executive Board Chairman and CEO Karl-Ludwig Kley, in s company statement. “Next year, our focus will mainly be on the integration of Sigma-Aldrich as well as the further development of the pharmaceutical pipeline.”

In its Healthcare business sector, Merck KGaA plans R&D investments in immuno-oncology to be EUR 150 million ($165 million) to EUR 200 million ($220 million)  higher in 2016 than in 2015. These investments will be allocated to the immuno-oncological antibody avelumab, which Merck KGaA is co-developing with Pfizer, as well as to projects in early stages of clinical development.

In 2015, Merck KGaA, together with partner Pfizer, initiated four trials for avelumab, including those announced yesterday in advanced gastric and gastro-esophageal junction cancers. The first potential market launch for avelumab is expected in 2017. In early clinical development, Merck KGaA is driving the development of the investigational molecule M7824, among others. The bifunctional fusion protein targets PD-L1 and TGF-ß. The company also plans to increase its R&D investments in oncology and immunology by a medium to high double-digit million euro figure in 2016. The company stated that it is reviewing a partnership model for its bruton tyrosine kinase (BTK) program. This investigational compound is a highly selective BTK inhibitor, which is important in the development and function of various immune cells.

In connection with the preparations for the potential market launches of avelumab and of the multiple sclerosis drug cladribine, Merck KGaA expects investments in the medium to high double-digit million euro range. As announced on December 7, the company will not further pursue clinical trials with evofosfamide in advanced soft tissue sarcoma and advanced pancreatic adenocarcinoma.

The current Life Science business of Merck KGaA generated solid organic growth rates in 2015; this similarly holds true for Sigma-Aldrich. In both cases, demand from the biotech industry was a key growth driver. The Life Science business sector serves three customer segments: Research Solutions, Applied Solutions and Process Solutions. Within three years, meaning by 2018, Merck KGaA intends to realize the synergies of EUR 260 million ($286 million)communicated since the announcement of the transaction and provided the following details. Marketing & Selling on the one hand as well as Administration and R&D on the other hand are expected to each generate around 30% of the cost savings, and around 40% will come from Production. Cost savings of EUR 90 million ($99 million) and EUR 170 million ($187 million) are intended to be achieved in 2016 and 2017 respectively, with the full annually recurring synergy potential of EUR 260 million ($286 million) planned to be reached by the end of 2018. The estimated one-time integration costs in order to achieve the synergies are around EUR 400 million ($440 million), and will be distributed over a four-year period.

Source: Merk KGaA

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