Merck KGaA

XETRA:MRK

Earnings Call Transcript 2021-Q4

[Operator]

Dear ladies and

gentlemen,

welcome

to

the

Merck

Investor

and

Analyst

Conference

Call

on

Fourth

Quarter

2021.

As

a

reminder,

all

participants

will

be

in

a

listen-only

mode.

May

I

now

hand

you

over

to

Constantin

Fest,

Head

of

Investor

Relations,

who

will

lead

you

through

this

conference.

Please

go

ahead,

sir.

[Constantin Fest, Head-Investor Relations, Merck KGaA]

Thank

you,

John.

Dear

ladies

and

gentlemen,

a

very

warm

welcome

from

my

side

to

this

Q4 2021

earnings

results

call

of

Merck.

My

name

is

Constantin

Fest,

I'm

Head

of

Investor

Relations

here

at

Merck.

And

I'm

delighted

to

have

here

today

with

me

Belén

Garijo,

CEO

of

the

Merck

Group,

as

well

as

Marcus

Kuhnert,

CFO

of

the

Merck

Group.

For

the

Q&A,

we

will

also

be

joined

by

Matthias

Heinzel,

CEO

of

Life

Science;

as

well

as

Peter

Guenter,

CEO

of

Healthcare;

and

Kai

Beckmann,

CEO

of

Electronics.

We

would

like

to

first

run

you

through

the

key

slides

of

this

presentation.

And

then,

we'll

be

happy

to

take

all

of

your

questions

during

the

Q&A.

Having

said

this,

I'd

like

to

now

hand

over

to

Belén

to

kick

off

the

presentation.

[Belén Garijo López]

Thanks,

Constantin,

and

welcome,

everybody,

to

our

full

year

earnings

call.

We

have

invited

you

to

discuss

our

annual

results

today.

But

given

the

incomprehensible

violence

happening

right

now

at

the

very

heart

of

Europe,

business

events

like

this

need

to

be

put

into

perspective.

The

war

in

Ukraine

is

a

painful

cut

to

any

regularity.

And

to

me,

personally,

and

to

all

of

us

at

Merck,

it

is

devastating

to

witness.

It

saddens

me,

especially,

to

see

the

heartbreaking

images

every

day,

what

we

know

to

be

a

truth

in

world that

women

and

children

suffer

disproportionately.

Hence,

to

support

humanitarian

aid

in

Ukraine,

Merck,

as

a

company,

will

donate

€2

million

to

the

German

Red

Cross. €1

million

of

this

amount

will

be

contributed

by

the

Merck

family.

In

addition,

we

have

set

up

a

donation

platform

to

enable

everyone

at

Merck

to

contribute.

Donations

made

here

will

be

matched

by the

company.

As

you

know,

we

are

dedicated

to

advancing

human

progress,

and

the

health

and

wellbeing

of

people

will

always

be

at

the

center

of

our

actions.

We

live up

to

this

responsibility

by

continuing

to

do

everything

in

our

power

to

ensure

the

supply

of

medicines,

some

products

to

patients

and

customers,

of

course,

in

full

compliance

with

the

existing

sanctions.

What

makes

me

very

proud

is

to

see

how

Merck

colleagues

across

the

company,

particularly

in

countries

bordering

on

Ukraine,

such

as

Poland,

are

volunteering

to

support

in

this

operation,

preparing

to

welcome

Ukrainian

refugees

to

their

homes,

organizing

the

transportation

of

care

packages

with

food

and

hygiene

products,

and

connecting

on

our

intranet,

as

well

as

locally

to

share

information

about

ways

to

help

and

donate.

And

this is

the

very

team

that

delivered

our

2021

results.

And

in

face

of

other

considerable

challenges,

such

just

COVID, they

did

a

fantastic

job.

Now,

let's

go

to

slide

number

5

of

the

presentation

for

the

highlights. Overall,

as

you

have

seen

in

the

press

release

already,

2021

was

an

outstanding

year

for

Merck

operationally,

strategically,

and

financially.

And

thanks

to

the

commitment

and

dedication

of

our

more

than

60,000

employees,

we

delivered

strong

operational

performance

in

what

continues

to

be

a

highly

challenging

environment.

We

made

progress

with

our

strategic

agenda,

accelerated

our

science

and

technology

leadership through

cutting-edge

innovation,

and

launching

major

investments

for

profitable

growth

in

the

years

ahead.

We

delivered very

strong

financial

results.

Organically,

group

sales

increased

by

14%,

and

EBITDA

pre rose

27%

on

an

underlying

basis.

That

is

excluding

the

Biogen

provision

reversal

in

2020.

Operating

cash

flow

soared

by

over

30%,

and

we

have

strengthened

our

balance

sheet

further

through

rapid

deleveraging.

Close

to

80%

of

our

total

sales

growth

was

driven

by

the

so-called

Big

3,

and

all

three

of

our

business

sectors

posted

double-digit

earnings

growth

with

– which

clearly

speaks

of

the

strength

of

our

portfolio.

Life

Science

was

the

star

performer

with

very

strong

growth

in

the

core

business

and

a

significant

upside

from

our

contribution

in

the

response

to

COVID-19.

We

increased

capacities

significantly

in

2021

and

further

boosted

our

capabilities

to

expand

in

the

attractive

CDMO

space.

In

Healthcare,

we

continue

to

advance

our

pipeline

and

drove

significant

growth

from

the

further

ramp-up

of

Mavenclad

and

Bavencio

on

top

of

a

very

highly

resilient,

established

portfolio.

In

Electronics,

we

accelerated

our

growth

trajectory

by

capitalizing

on

our

strong

position

as

a

leading

supplier

in

the

semiconductor

industry.

As

we

look

to

2022

and

ahead

to

2025,

we

expect

to

achieve

continued

strong

growth

following

rigorous

execution

of

our

strategic

priorities.

And

as

usual,

at

this

time

of

the

year,

we

are

introducing

qualitative

guidance

for

2022.

This

calls

for

strong

organic

growth

of

group

sales

and

EBITDA

pre

supported,

once

again,

by

all

three

business

sectors.

We

are

confident

that

2022

will

mark

another

successful

year

for

Merck,

and

we

will

provide

more

color

later

and

in

the

Q&A.

Let

me

now

move

into

the

next

slide,

slide

number

6,

to

take

a

quick look

at

how

we

performed

against

our

targets

in

2021.

As

you

can

see,

we

delivered

on

all

of

our

headline

promises.

In

fact,

if

you

recall,

we

upgraded

our

guidance

three

times

last

year,

mainly

owing

to

the

very

dynamic

environment

generated

by

COVID

in

Life

Science.

On

slide

number

7, you

will

find

the

sales

breakdown

and

growth

by

region.

Having

generated

almost

€20 billion

sales

in

2021,

we

also

generated

double-digit

growth

in

all

major

regions,

a

strong

testament

to

the

global relevance

of

our

diversified

portfolio.

Growth

in

Life

Science

was

very

strong

and

very

similar

across

our

three

main

regions,

while

in

Healthcare

and

Electronics,

it

was

strong,

but

it's

slightly

skewed

towards

North

America.

Above

all,

it

is

important

to

note

that

our

footprint

remains

nicely

balanced

with

significant

exposure

to

strategically

important

growth

markets

in

Asia-Pacific

at

36%

of

sales,

followed

by

Europe

at

29%

and

North

America

at

27%.

On

slide

number

8,

you

have

the

dividend.

And

as

you

have

seen

from

our

press

release

this

morning,

we

have

proposed

a

dividend

of

€1.85

per

share.

We

will

propose

that

to

the

AGM

on

April

22.

This

is

a

32%

increase

over

2020

and

a

payout

ratio

of

21.2%

of

EPS

pre,

and

fully

consistent

with

our

well-known

dividend

policy

aimed

at

continuous

dividend

growth

in

line

with

our

earnings

developments.

Let

me

now

provide

a

more

detailed

view

of

2021,

starting

with

Life

Science

in

slide

number

10.

Once

again,

Life

Science

had

a

fantastic

year.

Organically,

sales

and EBITDA

pre

rose

21%

and

38%,

respectively.

All

three

business

units

delivered

record

organic

revenue

growth

with

Process

Solutions

being

in

the

lead

at

an

outstanding

31%,

followed

by

Research

Solutions

at

a

very

strong

15%

and

Applied

at

a

very

good

9%.

Also

note

that

we

posted

double-digit

growth

across

all

regions

and

customer

segments. Lightly

more

than

half

of

the

growth

was

attributable

to

our

strong

core

business.

Here,

we

got

the

benefit

from

a

recovery

against

soft

comparables

in

H1

and

more

normal

dynamics

in

H2,

with

very

robust

fundamentals

across

the

board.

On

top

of

this,

we

continued

to

make

critical

contributions

in

the

response

to

COVID-19,

supporting

more

than

80

vaccines

projects,

over

35

testing

solutions,

and

more

than

50 treatments.

Total

COVID-related

sales

in

Life

Science

amounted

to

about

€1.15

billion

last

year,

of

which

close

to

€1

billion

came

from

Process

Solutions,

and

around

€150

million

from

Research

Solutions.

Looking

ahead,

we

expect

continued

strength

in

the

core

business,

which

is

our

key

value

driver.

And

we

also

expect

significant

demand

related

to

COVID,

although

likely

failing

and

potentially

increasingly

volatile,

as

we

will

explain

to

you

later.

Turning

to

profitability,

2021

was

exceptional.

The

EBITDA

pre

margin

in

Life

Science

came

in

at

a

record

36.6%

on

sales,

supported

by

a

positive

mix,

favorable

pricing,

and

a

strong

operating

leverage.

We

have

seen

a

slightly

lower

margins

in

H2

mainly

due

to

investment,

basically,

accelerated

recruitment

of

people

that

we

need

for

the

factory

and

the

ramp-up

of

other

strategic

investments.

Talking

about

strategic

investment,

our

direction

is

clear.

We

aim

to

strengthen

our

core

and

expand

in

high growth

segments.

And

we

have

made

great

strides, again,

in

our

strategy

in

2021.

First,

we

have

maximized

the

output

in

bottleneck

areas

through

productivity

gains

first,

and

adding

significant

new

capacity

in

Danvers

and

Molsheim

for

single-use

and

in

Jaffrey

for

filtration.

We

have

successfully

launched

our

upgraded

e-commerce

platform

of

more

than

20,000

new

products

across

our

broad

portfolio.

The

highlights

include

important

new

features

to

our

Bio4C

platform

and

SyntheChol,

a

high-purity

synthetic

cholesterol

for

use

in

mRNA

therapeutics.

Also

in

Life

Science,

we

increased

R&D

in

the

double-digit

percentage

range,

and

we

will

put

even

greater

emphasis

on

innovation,

digital,

and

emerging

markets,

mainly

China

going

forward.

We

entered

important

strategic

partnership,

for

example,

with

BioNTech,

and

we

significantly

accelerated

our

multimodality

CDMO

strategy

through

organic

and

inorganic

investments,

including

the

acquisition

of

AmpTec,

and

most

recently,

Exelead.

In

summary,

2021

was

a

great

year

for

Life

Science,

and

we

remain

confident

about

the

outlook.

The

new

organization

of

our

Life

Science

sector

that

Matthias

recently

announced

is

aimed

at

enhancing

our

focus

and

capabilities

in

the

service

business,

while

fully

exploiting

the

synergies

between

Research

Solutions

and

Applied

Solutions

at

the

customer

level,

and

we

are

convinced that

it

will

better

serve

the

realization

of

our

ambition

– of

our

ambitious

growth

plan

in

the

coming

decade.

Turning

to

Healthcare

on

slide

number

11,

Healthcare

had

also

a

strong

year

overall.

Organically,

sales

were

up

9%,

and

EBITDA

pre

increased

17%,

excluding

the

Biogen

provision

reversal

in

2020.

Our

established

portfolio

remained

highly

resilient,

delivering

organic

sales

growth

of

3%

despite

VBP

impact

in

China.

On

top

of

this,

sales

from

new

launches,

in

particular,

Mavenclad,

Bavencio,

and Tepmetko,

rose

sharply

at

more

–

adding

more

than

60%

year-on-year.

By franchise,

Oncology

increased

almost

30%,

reflecting

double-digit

growth

of

Erbitux,

supported

by, you

may

remember,

the

temporary

supply

agreement

with

Eli

Lilly

and

the

strong

uptake

of

Bavencio

in

first-line

metastatic

UC,

urothelial

cancer,

with

sales

more

than

doubling.

Our

N&I

franchise

was

up

with

the

ongoing

decline

of

Rebif

more

than

offset

by

significant

growth

of

Mavenclad,

which

was

up

over

30%

despite

a

very

challenging

high-efficacy

dynamic

market

environment.

Another

clear

highlight

of

Healthcare

was

the

very

robust

performance

of

our

Fertility

franchise,

which

posted

remarkable

growth

of

more

than

25%,

amid a

broad-based

recovery

following

the

pandemic-related

dip

in

2020.

Our

Cardiometabolic

and

Endocrinology

franchise,

CM&E,

was

down

slightly

due

to

the

temporary

impacts

on

China

VBP on

Glucophage.

In

fact,

Glucophage

outside

of

China

and

the

rest

of

the

CM&E

portfolio

delivered

very

solid

growth.

In

terms

of

profitability,

and

excluding

the

Biogen

provision

reversal

in

2020,

the

EBITDA

pre margin

in

Healthcare

increased

to

30.4%

on

sales,

supported

by

revenue

growth,

milestone

income

from

Bavencio,

and

a

very

disciplined

cost

management.

Looking

more

strategically,

our

priorities

have

further

evolved

and

we

are

confident

that

our

focused

leadership

approach

is

providing

solid

basis

for

longer-term

growth.

Our

pipeline

has

significant

potential,

and

we

advanced

it

further

in

2021.

In

total,

as

you

can

see

on

the

slide,

we

have

now

14

clinical

development

programs

underway,

including

compounds

with

novel

mechanism

that

could

redefine

the

standard

of

care

in

major

therapeutic

areas.

We

completed

the

Phase

III

recruitment

for

our

blockbuster

candidate,

evobrutinib

in

MS,

and

we

are

on

track

with

the

development

of

Xevinapant,

our

late-stage

blockbuster

candidate

in

head

and

neck

cancer.

We

also

remain

committed

to

our

other

focus

assets

and

will

initiate

Phase

II

for

enpatoran

in

SLE

and

CLE

surely.

With

regard to

our

recent

launches, Mavenclad

is

holding

or

gaining

market

share

in

most

markets,

while

we

see

a

suppressed

dynamic

–

high-efficacy

dynamic

market

in

terms

of

volume.

Bavencio

is

poised

for

continued

strong

growth,

from

rising

uptake

in

first-line

metastatic

UC

and

the

launch

of

tepotinib

in

MET exon 14

will

benefit

from

the

recent

approval

in

Europe.

Our

established portfolio

continues

to

be

providing

a

robust

base,

and

we

have

further

strengthened

our

leading

position

in

Fertility

and

returned

to

growth

in

China

in

Q4.

All

in

all,

we

feel

good

about

our

positioning

in

Healthcare.

And

we

will

remain

very

focused

on

the

stringent

execution

of

our

strategy

to

deliver

efficient

growth.

Let's

move

into

Electronics

on

slide

number

12.

And

here

as

well,

2021

was

a

very

strong

year

for

Electronics.

Organic

sales

increased

by

8% –

by a

strong

8%,

and

EBITDA

pre

even

faster

at

10%.

The

key

driver

of

growth

was

Semiconductor

Solutions

with

revenues

up

15%,

once

again

significantly

ahead

of

our

mid-term

guidance.

Double-digit

growth

in

Semi

was

supported

by

strong

demand

across

key

markets

including

China,

as

well

as

new

business

wins

in

Patterning,

Thin

Film,

and

Specialty

Gases.

On

top

of

these,

our

DS&S

business

benefited

from

significant

project

contributions,

as

our

customers

are

executing

on

major

investments

in

capacity

expansion

to

address

the

well-known

chip

shortages

and

the

future

demand.

Display

was

down

6%

organically,

fully

aligned

with

our

expectations,

as

the

ongoing

decline

of

liquid

crystals

was

mitigated

by

high

growth

in

OLED

materials.

Surface

increased

13%

organically

on

the

back

of

a

strong

market

recovery

following,

as

you

recall,

pandemic-related

impacts

in

2020.

The

EBITDA

pre

margin

in

Electronics

increased

to

a

very

solid

31.3%,

supported

by

the

Versum

synergies

and

despite

rising

input

costs

pressure

in

the

second

half

of

the

year.

Bigger

picture, we

have

successfully

delivered

on

our

Bright

Future

transformation

ahead

of

time

and

launched

our

growth

initiative,

Level

Up,

to

drive

growth

in

the

years

ahead. Of

note,

the

integration

of

Versum

has

been

very

smooth.

And

I'm

very

pleased

to

inform

that

we

have

already

achieved

our

upgraded

cost synergy

target

of

€85

million

for

2022

in

the

year

2021,

so

one

year

in

advance.

Looking

at

our

end

markets,

we

see

fast

growth

potential

and

a

substantial

need,

not

only

for

more

materials

and

solutions,

but

also

for

cutting-edge

innovation

to

enable

the

next

generation

of

chips.

And

we

are

highly

confident

that

Level

Up

will

help

ensure

that

we

address

our

customers'

ongoing

capacity

expansion

as

well

as

the

innovation

needs.

Today,

we

are

focusing

on

additional

scale in

key

semiconductor

regions

on

supporting

leading-edge

technology,

a broad

and

relevant

portfolio,

and

importantly,

the

right

people

and

capabilities

to

cater

to

our

customers'

needs.

To

sum

up,

once

again,

2021

was

a

good

year,

great

year

for

Electronics,

I

should

say,

and

we

have

everything

in

place

to

continue

to

execute

on

our

accelerated

growth

ambitions.

And

with

this,

let

me

hand

it

over

to

Marcus

for

a

more

detailed

review

of

our

financials

and

Q4.

[Marcus Kuhnert]

Thanks,

Belén,

and

welcome

also

from

my

side.

I

move

on

to

slide

number

14

for

an

overview

of

our

key

figures.

Overall,

we

are

very

pleased

with

our

performance,

delivering

very

strong

results

in

2021.

On

a

reported

basis,

group

net

sales

increased

12.3%

to

€19.7

billion.

EBITDA

pre

was

up

17.3%

at

€6.1

billion,

and

EPS

pre

rose

30.1%

to

€8.72.

Excluding

the

Biogen

provision

reversal

in

2020,

EBITDA

pre

and

EPS

pre

increased

even

faster

by

26.2%

and

43.7%,

respectively.

Portfolio

effects

were

minimal

and

FX

was

a

slight

headwind

for

the

full

year,

but

turned

positive

in

H2.

Operating

cash

flow

was

very

strong,

up

32.7%

at

€4.6

billion,

given

strong

earnings

growth

paired

with

sound

working

capital

management.

As

a

result,

we

were

able

to

deleverage

quickly,

lowering

our

net

financial

debt

by

around

about

€2

billion.

Moving

on

to

slide

15

for

a

summary

of

our

performance

by

business

sector.

Group

organic

sales

growth

was

very

strong

at

13.8%.

This

was

fueled

by

all

three

business

sectors,

with

Life

Science

as

the

largest

contributor,

followed

by

Healthcare

and

Electronics.

EBITDA

pre

growth

exceeded

sales

growth

in

all

three

business

sectors.

And

corporate

and

other

costs

were

down

year-on-year

mainly

due

to

an

improved

hedging

result.

As

such,

the

group

EBITDA

pre

margin

came

in

at

a

remarkable

31%.

Compared

with

2020,

this

corresponds

to

an

increase

of

130

basis

points,

and

even

as

much

as

340

basis

points

when

excluding

the

Biogen

provision

reversal.

Other

non-recurring

income

items

in

Healthcare

did

not

make

a

big

difference

in

the

year-on-year

comparison

and

were

fully

in

line

with

our

latest

guidance.

In

other

words,

the

strong

underlying

margin

expansion

is

primarily

a

reflection

of

significant

operating

leverage

in

Life

Science

and

disciplined

cost

management

across

the

entire

company.

Before

I

move

on

to

a

review

of

our

performance

in

Q4,

let's

have

a

look

at

our

reported

earnings

figures

for

2021.

As

you

can

see

on

slide

16,

EBIT

increased

40%

year-on-year

or

by

close

to

€1.2

billion

in

absolute

terms.

Please

note

that

this

number

would

have

been

even

€365

million

higher

without

the

Biogen

provision

reversal

in

2020. EBIT

growth

exceeded

EBITDA

pre

growth

by

close

to

€300

million,

mainly

due

to

lower

adjustments,

fewer

impairments,

and

reduced

amortization

of

purchased

intangibles.

The

financial

result

improved

by

close

to

€100 million

on

the

back

of

ongoing

swift

deleveraging,

hence,

significantly

lower

interest

expenses.

The

effective

tax

rate

was

21.9%,

in

line

with

the

lower

end

of

our

guidance

range.

And

as

a

result,

the

reported

net

income

surged

54%

to

€3.1

billion,

and

reported

EPS

came

in

at

€7.03.

That

said,

let's

now

take

a

closer

look

at

Q4.

Before,

however,

I

go

into

the

details

by

business

sector,

let

me

briefly

share

some

headline

figures

for

the

group,

which

you

will

find

in

the

appendix

to

this

deck.

Organically,

group

net

sales

increased

9.9%

in

Q4,

and

EBITDA

pre

rose

by

11%.

As

such,

momentum

moderated

further

compared

with

previous

quarters.

However,

this

was

fully

in

line

with

our

expectations

amid

tougher

comparables,

and

performance

overall

was

still

very

strong

led

by

Life

Science

and

Electronics.

Please

also

note

that

reported

numbers

were

boosted

by

significant

FX

tailwinds

in

the

fourth

quarter,

adding

over

3%

to

group

sales

and

close

to

7%

to

EBITDA

pre.

EPS

pre

increased

sharply

by

31%.

And

with

that,

let's

now

take

a

closer

look

to

our

three

business

sectors,

starting

with

Life

Science,

on

slide

number 17.

While

growth

moderated

further

due

to

rising

comps,

Life

Science

delivered

yet

another

record

quarter

in

terms

of

absolute

sales

and

earnings.

Organically,

sales

increased

14.2%

in

Q4,

still

well

above

our

mid-term

guidance.

The

core

business

contributed

almost

two-thirds

to

this

growth,

expanding

at

a

very

healthy

pace

of

around

about

10%.

COVID-related

sales

made

up

the

rest,

growing

significantly

year-over-year,

but

declining

slightly

quarter-over-quarter,

which

supports

our

view

that

we

have

reached

or

even

past

the

peak

by

now.

From

a

portfolio

perspective,

Process

Solutions

remains

a

key

engine

of

growth

with

sales

up

25.5%

organically.

About

half

of

this

was

attributable

to

the

core

business

with

mid-teens

growth,

reflecting

robust

end

markets,

especially

in

biopharma.

COVID-related

sales

in

Process

Solutions

still

contributed

positively

to

the

growth

in

the

fourth

quarter

and

came

in

at

around

€950

million

for

the

full

year,

slightly

shy

of

our

latest

guidance

due

to

supply

challenges.

All

business

lines

grew

double-digit,

with

bioprocessing

as

the

main

driver

and

strong

growth

in

Services.

We

continued

to

make

good

progress

with

our

capacity

expansions.

In

turn,

a

key

enabler

of

yet

another

strong

sequential

sales

increase.

Order

intake

growth

was

slightly

positive

against

tough

comps

and

the

order

book

continued

to

increase

quarter-over-quarter.

Moving

on

to

Research

Solutions,

here,

the

sales

were

up

1.5%

organically

against

tough

comps.

Growth

was

entirely

driven

by

the

core

business,

with

lab

activity

at

or

close

to

pre-pandemic

levels.

COVID-related

sales

in

Research

Solutions

were

down

year-on-year

for

the

first

time

and

continued

to

fade

sequentially,

coming

in

at

close

to

€200

million

for

the

full

year

and

thus

exceeding

our

latest

guidance

due

to

higher

testing

activity

at

year-end. Last but

not

least,

Applied

Solutions

reported

very

robust

growth

of

6.9%

organically,

with

diagnostics

as

a

key

driver

and

negligible

COVID-related

sales.

Geographically,

we

saw

double-digit

growth

in

all

major

regions.

And

in

terms

of

customer

segments,

Pharma

and

Biotech

was

the

strongest,

followed

by

Industrial

and

Testing

and

diagnostics,

all

showing

double-digit

growth,

while

academia

was

slightly

down

against

tough

comparables.

With

regard

to

earnings,

EBITDA

pre

surged 25.4%

organically,

implying

a

margin

expansion

of

300

basis

points,

driven

by

positive

mix,

favorable

pricing

and

operating

leverage.

Similar

to

Q3,

we

saw

a

further

modest

margin

decline

on

a

sequential

basis,

as

we

are

stepping

up

strategic

investments,

and

as

Belén

mentioned,

we

make

progress

in

hiring

people,

which

is

essential

to

bring

capacities

up.

And

with

that,

let's

move

on

to

Healthcare,

on

slide

number

18.

Healthcare

delivered

solid

top

line

growth

in

Q4,

with

sales

up

4.7%

organically.

The

established

portfolio

was

stable

against

tough

comps,

and

recently

launched

products

showed

strong

growth

with

combined

sales

up

more

than

40%.

By

franchise,

Oncology

was

up

21%,

entirely

driven

by

continued

strong

uptake

of

Bavencio

at

a

plus

of

132%,

in

turn

supported

by

the

ongoing

first-line

metastatic

urothelial

cancer

launch

in

Europe.

Erbitux

was

flat

against

tough

comps

related

to

the

temporary

supply

agreement

with

Eli

Lilly.

As

a

reminder,

this

agreement

generated

initial

sales

of

€32

million

in

Q4

2020

versus

the

final

booking

of €10

million

in

Q4 2021.

Excluding

this

effect,

performance

of

Erbitux

was

very

strong

with

a

double-digit

growth.

Our

N&I

franchise

was

down

5%

organically

as

the

ongoing

decline

of

Rebif

at

a

level

of

minus

12%

may

be

partly

offset

by

growth

of

Mavenclad

at

5%.

On

a

positive

note,

we

were

able

to

keep

market

share

stable

for

Mavenclad

in

the

high

efficacy

dynamic

market.

However,

this

market

was

clearly

impacted

by

the

Omicron

wave.

Fertility

performed

strongly

again,

up

8%

organically

against

slightly

soft

comps.

With

the Fertility

market

back

at

pre-pandemic

levels,

we

do

not

foresee

further

catch-up

effects,

but

solid

growth

on

robust

market

fundamentals,

including

rising

prevalence

and

awareness

of

infertility.

And

last

but

not

least,

our

CM&E

franchise

returned

to

growth

of

3%

in

the

fourth

quarter,

as

the

China

VBP

impact

on

Glucophage

started

to

fade

and

the

remainder

of

the

portfolio

continues

to

be

in

a

good

shape.

Other

highlights

include

the

recent

approval

of

Tepmetko

in

Europe

and

the

acquisition

of Chord

at

the

end

of

last

year.

With

regard

to

earnings,

EBITDA

pre

declined

12%

organically

with

the

margin

down

360

basis

points,

mainly

due

to

tough

comps

in

terms

of

non-recurring

income

in

the

last

year

and

fluctuations

in

manufacturing

yields,

I

should

say,

temporary

fluctuations

in

manufacturing

yields.

On

non-recurring

income,

please

note

that

Q4

2020

included

around

€30

million

from

GSK

and

a

mid-double-digit

million

euro

amount

from

active

portfolio

management,

while

Q4

2021

did

not

contain

any

non-recurring

income

as

guided.

Looking

into

2022,

we

expect

income

from

active

portfolio

management

in

the

low-to-mid

double-digit

million

euros

for

the

full

year,

of

which

we

expect

a

low-double-digit

million

euro

amount

in

the

first

quarter.

With that,

let's

continue

with

Electronics

from

slide

number

19.

Electronics

performed

also

very

strongly

in

the

fourth

quarter

with

sales

growing

at

10.4%

organically.

Semiconductor

Solutions

was

again

the

key

driver

and

is

firing

on

all

cylinders

with

a

record

organic

sales

growth

of

24%.

This

is

significantly

ahead

of

our

mid-term

guidance

and

should

not

be

extrapolated.

Our

Semi

Materials

business

accelerated

further

despite

rising

comps,

delivering

broad-based

performance

across

the

portfolio

and

growth

of

over

20%

in

a

strong

market.

On

top

of

this,

we

continued

to

capitalize

on

important

projects

in

our

Delivery

Systems

and

Services

business,

helping

customers

to

realize their

investments

in

new

fab

capacity,

and

we

expect

these

project

contributions

to

last

throughout

all

of

2022.

Sales

in

Display

Solutions

were

down

10%

organically

with

the

usual

pattern

of

a

continued

decline

in

liquid

crystals,

partly

offset

by

strong

performance

of

OLED

materials.

Surface

Solutions

posted

a

slight

growth

of

1%

against

rising

comp.

EBIDTA

pre

increased

12.1%

organically,

translating

into

a

very

solid

margin

of

31.5%.

This

corresponds

to

an

increase

of

160

basis

points

with

operating

leverage,

favorable

yield

fluctuations

and

Versum synergies

more than

offsetting

rising

input

cost

pressure.

Turning

to

slide

20 for

a

few

remarks

on

our

balance

sheet

at

year-end

2021.

In

summary,

the

€3.6

billion

expansion

over

2020

mainly

reflects

the

strong

business

performance

and

FX.

Cash

and

cash

equivalents

increased

due

to

strong

operating

cash

flow.

Goodwill

rose

due

to

FX,

and

net

working

capital

increased

less

than

sales.

Property,

plant

and

equipment

increased

on

the

back

of

investments

to

support

our

growth

ambitions

and

also

again

FX

effects.

Financial

debt

was

reduced

by

over

€1

billion

amid

significant

net

repayments.

And

as

a

result,

our

equity

ratio

strengthened

from

41%

to

47%,

while

net

debt-to-EBITDA

pre

improved

from

2.1

times to

1.4

times.

Let

me

also

briefly

comment

on

cash

flow

performance

in

Q4.

As

you

can

see

on

slide

21,

operating

cash

flow

was

down

€243

million

year-over-year,

mainly

due

to

tax

prepayments

and

increased

working

capital

to support

sales

and

supply

security

in

Life

Science

and

Electronics.

Cash

out

for

investing

activities

was

higher

than

last

year,

although

CapEx

on

PP&E

was

lower.

Keep

in

mind

that

investing

cash

flow

in

the

first

quarter

of

last

year

was

positively

impacted

by

the

reversal

of

temporary

investment

of

excess

cash.

At

the

same

time,

CapEx was

elevated

last

year

by

the

opportunistic

purchase

of

buildings

at

our

Burlington

and

Tempe

sites.

But

by

contrast,

cash

out

for

CapEx

in

Q4

2021

was

low

due

to

phasing

of

payments.

In

fact,

gross

additions

to

PP&E

on

the

balance

sheet

were

broadly

in

line

with

our

latest

CapEx

guidance

of

around

€1.4

billion

in

2021.

Also

note

that

for

2022,

we

are

guiding

to

CapEx

in

a

range

between

€1.6

billion

and

€1.7

billion,

fully

in

line

with

our

goal

to

increase

CapEx

to

around

a

level

of

€2

billion

by

2023

to

support

our

accelerated

organic

growth

ambitions.

Last

but

not

least,

the

significant

decline

in

cash

out

for

financing

activities

can

be

explained

by

significant

net

debt

repayments

here,

especially

of

bank

liabilities

and

commercial

papers

in

the

prior-year

period.

And

with

that,

let

me

hand

back

to

Belén

for

an

update

on

ESG

and

for

guidance.

[Belén Garijo López]

Thank

you,

Marcus.

So

briefly

on ESG,

I'm

pleased

to

report

that

we

have

accomplished

all

goals

that

we

set

ourselves

in

2021. The

Merck

ESG

database

is

in

place,

and

we

have

implemented

and

tested

the

sustainable

business

value

methodology

in

several

pilots.

We

have

developed

a

set

of

KPIs

that

we

are

introducing

to

you

today.

The

14

metrics

and

corresponding

targets,

as

far

as

they

have

been

disclosed

today,

can

be

found

in

the

appendix

of

this

deck.

For

the

majority

of

the

KPIs,

we

will

report

numbers

as

of

2021,

while

the

remainder

will

follow

next

year.

We

have

incorporated

ESG

frameworks

in

major

processes

across

important

functions,

including

R&D,

procurement,

controlling,

and

M&A.

And

we

have

already

defined

a

list

of

priority

projects

and

approved

the

corresponding

budgets

to

fund

those.

One

of

the

projects

relates

to

our

group-wide

supply

chain

with

the

objective

of

increasing

the

percentage

of

relevant

suppliers

that

are

covered

by

a

valid

sustainability

assessment. Other

projects,

to

mention

some,

growing

the

share

of

greener

products

in

Life

Science,

as

well

as

establishing

a

sustainability

scorecard

for

Healthcare

R&D

and

portfolio

assessment

in

Electronics.

In

Healthcare,

we

are

also,

for

example,

building

programs

for

access

to

medicine

in

low

and

middle-income

countries.

Moving

on to

24,

our

initiatives

are

coupled

with

increased

transparency

on

ESG. And

starting

with

the

fiscal

year

2021,

we

integrated

the

non-financial

statements

into

the

Annual

Report.

We

also

added

reporting

on

EU

taxonomy

in

line

with

the

recent

regulations.

And

this

shows

that

our

share

in

taxonomy

eligible

net

sales,

CapEx,

and

OpEx

in

connection

with

the

environmental

objective

on

climate

change

mitigation

is

low.

However,

this

is

due

to

limited

conformity

of

the

Merck's

business

activities

as

defined

in

the

regulations

so

far

and

will

evolve,

will

change

with

the

next

steps

of

the

EU

taxonomy

reporting.

As discussed,

we

are

introducing

a

set

of

14

sustainability

metrics,

including

those

which

are

relevant

for

the

compensation

of

the

Executive

Board.

Looking

ahead,

we

are

planning

to

publish

our

comprehensive

sustainability

report

in

April

as

usual,

and

this

will

contain

the

Task

Force

on

Climate-related

Financial

Disclosure (sic) (Disclosures] (00:39:03)

reporting

for

the

first

time.

And

in

addition,

we

will

extend

it

to

our Sustainability

Accounting

Standards

Board

reporting

from

the

Pharma

and

Biotech

to

the

Medical

Supply

and

the

Semiconductor

Industry

Standards

to

reflect

all

three

business

sectors.

The

analysis

of

ESG

requirements

will

be

ongoing

as

the

stakeholder

expect,

mean

will

be

dynamic

as

the

stakeholder

expectations

and

regulations

continue

to

evolve.

And

we

will

adjust our

plans

as

necessary

and

continue

to

be

very

focused

on

execution.

To

sum

it

up,

significant

progress

in

2021

convinced

that

this

will

help

us

to

further

accelerate

the

contributions

that

we

make

to

solving

more

of

the

greatest

sustainability

issue

facing

the

world,

resulting

in

mutual

benefits

for

society,

for

the

environment,

and

importantly,

for

our

competitive

advantage

and

business

performance.

Let

me

conclude

with

the

guidance

for

2022.

As

you

can

see

on

the

slide

26,

we

are

providing

qualitative

targets

as

usual

at

this

time

of

the

year,

and

this

will

be

followed

by

more

detailed

targets

as

part

of

our

Q1

reporting

in

May.

For

group

net

sales,

we

are

guiding

to

a strong

organic

growth

and

currency

tailwinds

in

a

range

of

1%

to

4%.

For

group

EBITDA

pre,

we

are

also

guiding

to

strong

organic

growth

and

even

slightly

higher

FX

tailwinds

in

a

range

of

2%

to

5%,

and

this

is

mainly

linked

to

the

USD

and

the

Chinese

renminbi.

With

regard

to

the

situation

in

Russia

and

Ukraine,

please

note

that

our

business

exposure

is

limited

and

our

forecast

currently

doesn't

assume

a

meaningful

impact.

However,

we

are,

of

course,

carefully

monitoring

the

situation

and

will

provide

you

with

further

updates

as

the

year

progresses

and

we

have

more

transparency

on

the

evolution

of

the

war.

Moving

into

the

next

one, some color

by

business

sector.

And

there,

as

you

can

see,

we

expect

sales

and

earnings

growth

to

be

supported

by

all

three

business

sectors,

as

it

was

the

case

in

2021.

Life

Science

will

continue

to

be

the

fastest

growing

sector,

followed

by

Electronics

and

Healthcare.

Please

note

that

you

should

think

about

qualitative

guidance

in

ranges.

These

ranges

could

be

overlapping

and

the

sector

guidance

are

to

support

the

group

guidance

and

do

not

have

to

adapt.

For

Life

Science,

we

expect

growth

to

be

driven

by

continued

strength

in

the

core

business

and

Process

Solutions

as

the

key

driver

of

growth.

COVID-related

sales

will

be

slightly

dilutive

to

growth.

In

particular,

we

now

expect

COVID-related

sales

in

Process

Solutions

of

up

to

€900

million,

which

is

slightly

more

cautious

compared

with

our

previous

guidance

of

around

€900

million.

For

Research,

we

continue

to

expect

COVID-related

sales

below

€100 million

and

negligible

contributions

in

Applied.

In

terms

of

the

margin,

our

qualitative

guidance

may suggest

a

stable

margin

in

Life

Science.

We

continue

to

believe

that

slight

margin erosion

is

the

most

likely

scenario,

consistent

with

the

trend

in

recent

quarters

and

reflecting

increasing

strategic

investments.

Let

me

also

give

a

sense

of

phasing.

In

the

past

couple

of

weeks,

we

have

observed

increased

volatility

around

COVID-related

demand

in

Process

Solutions

due

to

Omicron,

that

is

certain

type

of

vaccines

and

treatments

are

working

better

than

others,

and

there

are

signs

for

a

potentially

accelerated

transition

into

the

endemic

phase.

In

addition,

we

are

facing

increased

supply

chain

related

to

Omicron,

including

staffing

and

raw

materials,

which

are

temporarily

weighing

on

output

in

key

manufacturing

sites.

So

bear

this

in

mind

when

you

build

your

models

for

Q1.

For

Healthcare,

we

expect

growth

to

be

mainly

driven

by

the

launches,

mainly

Mavenclad

and

Bavencio.

And

in

Electronics,

semiconductors

will

stay

the

key

growth

engine

with

the

OLED

materials

to

continue

with

a

strong

performance.

Last

but

not

the least,

we

believe

that

we

are

very

well

positioned

to

manage

profitability

amid

rising

input

costs,

although

the

situation

has

become

slightly

more

challenging

in

the

past

couple

of

months.

And

we

can

further

discuss

all

these

topics

during

the

question-and-answer

session.

This

is

concluding

my

presentation,

and

over

to

you,

Constantin.

[Constantin Fest, Head-Investor Relations, Merck KGaA]

Thank

you

very

much,

Belén,

for

this

presentation –

Belén

and

Marcus.

Now,

John,

if

we

could

start

the

Q&A,

please.

I

would

like

to

remind

everybody

to

kindly

limit

yourselves

to

a

maximum

of

two

question

– two

questions.

This

will

allow

more

of

you

to

ask

questions.

With

this,

John,

please,

let's

kick

off

the

Q&A.

[Operator]

Thank

you.

We

will

now

begin

our

question-and-answer

session.

[Operator Instructions]



We'll

take

our

first

question

from

Matt

Weston.

Please

go

[audio gap]



(00:45:28).

[Matthew Weston, Analyst, Credit Suisse Securities (Europe) Ltd.]

Thank

you

very

much.

It's

Matt

Weston

from

Credit

Suisse.

Two

questions,

if

I

can.

The

first,

please,

is

on

Mavenclad.

And

obviously,

you

had

a

challenging

performance

during

the

Omicron

wave

in

4Q,

but

it's

also

clear

that

it's

a

very

major

driver

of

your

Healthcare

growth

guidance

in

2022.

So,

we're

already

into

March.

I

would

be

very

interested

in

understanding

the

trends

that

you

are

seeing

in

Mavenclad

recovery

in

the

dynamic

MS

market,

as

the

Omicron

wave

wanes

in

major

markets

around

the

world?

And

then the

second

question

is

on

Life

Science.

There

was

a

lot

of

discussion

during

2021

about

whether

customers

were

overstocking

their

non-COVID

orders,

because

they

were

just

concerned

about

constraints

on

supply

chain.

And

during

those

discussions,

Merck

always

expressed

confidence

that

this

wasn't

the

case

with

your

products

and

you're

managing

customers

very

carefully

because

of

the

limited

inventory

you

have.

There

are

clearly

concerns

at

some

of

your

peers

that

we

may

see

a

significant

unwind

of

customer

base

stocking

in

2022.

Can

you

reiterate

your

confidence

that

you

think

you

don't

have

customers

with

a

lot

of

stock

in

the

channel?

[Belén Garijo López]

Matthias,

do

you

want

to

start

with

that?

[Matthias J. Heinzel]

Yeah.

Hey,

Matt.

It's

Matthias

here.

If

I

may,

I'll

start

with

your

second

question.

And

indeed,

I

confirm

what

we

talked

about

in

the

past,

right.

We

stay

very

close

to

our

customers,

and

we

do

not

see,

by

and

large,

especially

in

the

high

demand

products

a

major

overstocking,

right.

And

here

I talk

especially

about

the

single-use

products,

which

are

really

made

to

order,

right,

so for

specific

needs

of

customers

and

as

well

as

the

filtration

products.

So

yeah,

by

and

large,

we

still

see

a

very

high

demand

and

we

do

not

see

a

major

overstocking.

[Belén Garijo López]

Peter, go ahead.

[Peter Guenter]

Yeah.

So,

Matt,

thanks

for

the

question.

It's

Peter.

So,

you

remember

that

in

Q3,

I

hinted

to

further

volatility

in

Q4,

which

is

related

indeed

to

the

impact

on

the

high

efficacy

market

due

to

Omicron.

And

as

you

know,

I'm

not the

only

one

in

the

high

efficacy

sector

having

mentioned

those

issues.

I

think

my

colleagues,

[ph]



of

course,

in (00:47:58)

Novartis

hinted

towards

the

same

continued

depression

of

the

high

efficacy

market.

I

would

say,

though,

that

the

impact

of

Omicron

is

definitely

bigger

in

the

US

than

it

is

in

Europe.

And

I

think

that

if

you

would

take

all

these

things

into

account,

you

also

remember

that

we

had

a

one-off

in

Q3

that

actually

Q4

would

have

been

in

line

with

Q3

sales

normalized

for

this

one-off

of

Q3.

The

other

point

I

think

it's

important

to

mention

is

that

our

market

share

remains

stable

in the

US,

continues

to

grow

in

some

of

the

key

European

markets.

So

basically,

I'm

confident

that

if

we

can

consolidate

that

market

share

position

and

the

high

efficacy

market

indeed

recovers

once

we

go

out

of

Omnicom

that

you

should

see

a

recovery

of

the

growth

of

Mavenclad.

I

would

say,

though,

that

in

the

first

months

of

this

year,

we

are

still

not

out

of

the

Omicron

wave,

as

you

know,

especially

in

the

US.

So

I

would

expect

some

more

volatility

in

Q1

and

then

a

more

clear

trajectory

moving

forward.

[Matthew Weston, Analyst, Credit Suisse Securities (Europe) Ltd.]

Many

thanks,

indeed. I'll

jump

back

in

the

queue.

[Operator Instructions]

[Operator]

We'll

now

take

our

next

question

from

Gary

Steventon.

Please

go

ahead.

You're

line

is

open.

[Gary Steventon, Analyst, Exane SA (United Kingdom)]

Thank

you for

taking

the

question.

So

I

guess

just

going

to

your

CDMO

and

CTO

offerings, they've

been

getting

a

bit

more

airtime

in

recent

quarters

and

it's going

to

be

split

out

with

Life

Science

going

forward.

Could

you

just

talk

a

bit

here

to your

aspirations

for

this

business

as

well

as

kind

of

the

current

profile in

terms

of

growth

and

margin

contribution

within

Life

Science

and

Process

Solutions?

And

then

just,

on

the

slides,

you

noted

that

you

intend

to

scale

up

to

become

the

leading

CDMO.

So,

I'm

just

wondering

kind of

what

this

means

in

terms

of

size

and

over

what

time

period?

And

then

just

a

follow-up

question

on

Mavenclad,

please.

So,

you

gave

us

an

update

in

terms

of

your

patent

term

extensions

on

the

Capital

Markets

Day. And

I

think

you

mentioned

you

were

appealing

a

decision

in

the

US

and

that

an extension has

already

been

granted

in

France,

Italy

and

Spain,

I

think

in

Europe

taking

you

through

to

2030,

but

other

decisions

were

pending.

So,

just

an

update

here

on

any

progress

will

also

be

helpful.

Thank

you.

[Peter Guenter]

Yeah.

Gary,

let

me

start

by

the

Mavenclad

question.

There

is

no

update

since

our

last

communication

on

that.

So,

our

appeal

is

pending

in

the

US

and

the

SPC

situations

in

the

US

are

identical

actually

to

the

update

that

we

gave

you.

Indeed,

we

have

some

key

European

countries

where

we

have

an

SPS

obtained

– an

SPC

obtained,

sorry,

and

we

are

continuing

to

try

to

get

those

SPCs

in

those

European

countries

where

we

haven't

got

it

yet.

[indiscernible]

[Belén Garijo López]

(00:51:00).

[Matthias J. Heinzel]

Yeah.

Hey,

Gary.

It's

Matthias.

So

to

your

question

around

CDMO

and

CTO,

currently, it's

about

15%

of

our

Process

Solutions

business.

And

our

strategy

is,

clearly,

as

we've

outlined

at

the CMD,

to

rebuild

a

multimodality

CDMO

business

based

on

our

existing

presence,

which

is

mainly

around

mAbs,

high

potency

APIs,

viral

vectors

and,

obviously,

mRNA,

where

we

recently

also

added

significantly

with

an

acquisition

of

Exelead.

So,

our

goal

is

clearly

to

really

further

accelerate

that

business,

investing

into

R&D.

We're

investing

into

capacity

to

rebuild

it

up.

And

probably,

you

have seen

that

we

also

announced reorganization

effective

April

1.

And

to

really

support

that

growth

and

really

accelerate

it,

we

are

creating

a

Life

Science

Services

unit.

So

basically, we

are

splitting

out

all

the

service-related

businesses,

namely

CDMO

and

CTO.

And

then,

post

Q2,

we

will

actually

report

that

business,

the

new

Life

Science

Services

business,

so

you

will

also

get

greater

transparency

on

that

business

going

forward.

[Gary Steventon, Analyst, Exane SA (United Kingdom)]

Okay.

Thank

you.

[Operator]

We

will

now

take

our

next

question

from

James

Quigley.

Please

go

ahead.

Your

line

is

open.

[James P. Quigley, Analyst, Morgan Stanley & Co. International Plc]

Hi,

there.

Thank

you

for taking

my

questions.

So,

I

have

two.

First

one

is

on

Bavencio

in

bladder.

It's

now

been

on

the

market

for

quite

a

while.

So,

where

is

the

average

stay

time

landing

during

the

maintenance

setting? And

can

you

give

us

a

bit

more

details

on

the

new

combination

trials

with

novel

therapies?

I

think

it's

start – due

to

start

in

the

second

quarter.

So,

in

these

trials,

will

Bavencio

still

be

used

as

a

maintenance

or

you'll

sort of

push

it

up

in

the

treatment

setting as

part

of

those

combinations?

And

secondly,

on

Russia

and

Ukraine,

you

mentioned

that

your

business

exposure

is

quite

low.

From

a

clinical

trials

perspective,

there's

been

some

reports

that

there's

been

a

number

of

clinical

trials

that

are

currently

ongoing

and

enrolling

in

Russia

and

Ukraine.

I

think

I

noticed

that

one

of

your –

or

both

of

the

evobrutinib trials

have

some

reasonable

exposure

in

Ukraine.

So,

have

you

done

an

analysis

of

what

that

could

mean

in

terms

of

timing

of

readouts,

or

how

that

could

impact

any

of

your

trials,

particularly

the evobrutinib trial?

Thank

you.

[Belén Garijo López]

So,

Peter

can

build

on

this,

but

of

course,

we

have

deeply

analyzed

the

multiple

dimensions

of

the

implication

of

the

situation

in

that

region.

We

have

around

13

–

we

have

conducted

around

13

clinical

studies

in

Russia

and

Ukraine.

And

I

think

the

team

has

done

a

marvelous

job

to

anticipate

the

dynamics

of

the

trial

in

preparation

for

what

was

to

come.

So,

it's

too

early

to

say

at

this

time.

But

definitely,

the

team

is

very

well

prepared

to

protect

the

safety

of

the

patients,

to

secure

the

continuity

of

the

follow-up

to

the

extent

that

we

can

control

that.

And

we

will keep

you

informed

on

the

–

on

future

developments.

Peter,

I

don't

want –

do you want to add anything?

[Peter Guenter]

No, I

think,

Belén,

you

captured

it

perfectly.

I

think

we

did

everything

we

could

what

is

within

our

power

to

try

to

mitigate

the

impact. For

example,

we

increased,

of

course,

the

investigational

product

stock

in

the

countries

and

the

sites.

We

were

looking

into

moving

into

local

labs

instead

of

central

labs

for

the

biologies,

et cetera,

et cetera.

But

as

you

know,

it's

a

very

dynamic

situation,

I

would

say,

and

we

have

to

navigate

it

as

things

unfold.

And

on

Bavencio,

we

continue

to

make

progress,

both

sides

of

the

Atlantic,

and

you

can

see

that

also

in

the

sales.

I

think

your

question

was

around

to

the

percentage

of

maintenance

therapy

now

in

the

US.

So,

we

are

making

progress

continuously.

We

are

now

at

75%

of

patients

given

indeed

chemo

– or platinum-based

treatment,

if

they

are

platinum

eligible.

And

we

started

at

50%

at

the

launch

of

Bavencio.

So,

really,

we

are

able

to

change

the

treatment

paradigm

there.

And

then,

I

would

say

that

in

the

use

of

first-line

maintenance

therapy

with

Bavencio,

we

are

at

50%

at

the

end

of

last

year,

so

also

making

continuous

progress.

And

the

share

of

countries

like

Japan

and

some

key

countries

in

Europe

should

not

be

underestimated

in

the total

Bavencio

sales.

So,

we

have

very

good

performance

with

Bavencio

in

Japan.

In

countries

like

France,

like

Germany,

and

we

are

still,

I

would

say,

in

the

probably

final

stages

of

getting

reimbursement

for

Bavencio

in

countries

like

Italy

and

Spain,

for

example.

So,

I

think

we

can

be

relatively

optimistic

to

see

that

growth

continue.

A

last

piece

of

news

is

that

the

extension

of

the

JAVELIN

Bladder

trial

in

metastatic

UC,

we

have

now

over

30

months

of

follow-up.

And

actually,

we

have

seen

that

the

survival

benefit

further

increased

now

to

8.8

months,

where

it

was

7.1

months

in

the

pivotal

data.

So,

we

remain

very

optimistic

and

very

bullish

on

Bavencio.

On

the

clinical

trials,

so

the

so-called

Medley

trial,

I

can

tell

you

that

these

trials

are

actually

focused

on

reinforcing

the

position

in

the

maintenance

segment.

So

we

are

not

moving

up

in,

for

example,

the

adjuvant

setting.

And

I

think

we

have

talked

more

about

this

in detail

in

the

R&D

update

call.

[James P. Quigley, Analyst, Morgan Stanley & Co. International Plc]

Thank

you.

[Operator]

We

will

now

take

our

next

question

from

Falko

Friedrichs.

Please

go

ahead.

Your

line

is

open.

[Falko Friedrichs, Analyst, Deutsche Bank AG]

Thank

you.

And I

also

have

two

questions,

please.

Firstly,

what

are

your

latest

thoughts

on

M&A?

And

are

you

open

to

make

a

bigger

step

this

year,

or

is

that

rather

unlikely?

Then

secondly

on

your

Electronics

business,

my

question

is

how

much

longer

can

this

higher

demand

due

to

the

semiconductor

shortage

last?

And

do

you

expect

this

to

normalize

again

at

some

point

this

year,

or

do

you

rather

think

you

can

benefit

from

it

throughout

the

entire

year?

Thank

you.

[Belén Garijo López]

So let's

start

by the

semiconductors

question.

Kai?

[Kai Beckmann]

Yeah. Falko,

this

is

Kai

speaking.

Thanks

for

your

question.

You're

asking

about

the –

how

long

can

that

additional

demand

last.

Our

customers

are

investing

like

never

before.

So

there

is

a

strong

expectation

in

the

industry

that

demand

is

not

just

short

term,

it's

a

mid

to

long-term

demand.

And

the

investments

point clearly

in

this

direction. This

doesn't

come

from

only

one

source,

it

comes

from

very

different

sources

of

developments

and

all

kinds

of

areas

that

digitize

and

require

more

chips

and

more

sophisticated

chips

going

forward.

And

the

current

data

clearly

supports

the

mid-term

guidance

that

we

have

given

last

year

at

the

Capital

Markets

Day,

and

we

see

a

similar

development

confirming

this

year's

growth

trajectory.

MSI

growth

is

projected

at

mid-to-high

single

digit

for

2022,

confirming

our

mid-term

assumptions.

[Belén Garijo López]

Falko,

on

the

M&A

front,

not

too

many

things

new

to

report.

I

think

we

have

been

very

disciplined

in

executing

on

our

strategy.

As

I

mentioned

before,

we

have

recently

closed

Exelead,

which

is

very

centric

to

further

developing

our

mRNA

offering

as

a

CDMO

in

our

Life

Science

sector.

And

we

will

continue

to

move

on

primarily

on

bolt-on

acquisitions

this

year,

which

is

exactly

your

questions,

although,

of

course,

we

are

not

excluding

or

close

to

looking

at

more

transformative

options

as

of

2023,

as

our

cash

position

continues

to

significantly

improve.

[Falko Friedrichs, Analyst, Deutsche Bank AG]

Okay.

Thank

you.

[Operator]

We

will

now

take

our

next

question

from

Daniel

Wendorff.

Please

go

ahead.

Your

line

is

open.

[Daniel Wendorff, Analyst, ODDO BHF AG]

Thanks

for

taking

my

questions,

and

good

afternoon

also

from

my

side.

Two,

if

I

may.

The

first

one

on

Semiconductor

Solutions,

if

I

may.

So

according

to

my

understanding,

the

Ukraine

supplies

70%

of

the

world's

neon

gas,

which

is

an

important

step

for

semiconductor

manufacturing.

So

how

much

of

a

risk

is

the

war

here

really

for

the

recovery

of

this

market?

And

maybe

for

your

guidance,

any

more

color

you

can

provide

here

would

be

much

appreciated.

And

my

second

question,

it

would

be

on

Life

Science,

and

in

particular,

on

Applied

and

Research

Solutions.

So

how

should

we

think

about

these

businesses

going

into

2022?

According

to

my

understanding

and

the

business

environment

or

spending

environment

from

Life

Science,

research

institutions

looks

actually

quite

healthy.

And,

yeah,

any

more

color

you

can

provide

here,

I

would

appreciate.

Thank

you.

[Kai Beckmann]

Yeah,

Daniel,

this

is

Kai

speaking.

So,

Merck

has

no

supplies

from

Russia

or

Ukraine

as

direct

supplies.

We're

currently

in

contact

with

our

suppliers,

whether there are

any

indirect

effects

that

could

harm

us,

but

we

do

not

expect

anything

which

is

significant

on

our

side.

Of course,

your

data

is

correct,

and

we

need

to

check

with

our

customers

whether

they

have

other

sources

than

Merck

that

would

impact

their

factory

output.

This

is

largely

unknown

at

this

point

in

time,

and

we

will check

going

forward.

[Matthias J. Heinzel]

Yeah, hello,

Daniel.

It's Matthias

here.

So

to

address

your

question

about

Research

and

Applied,

yeah, first

of

all,

as

we

look

at

2021,

we

are

coming

from

very

strong

growth

rates

for

Research

with

15%,

Applied

with

9%,

that

partially

due

to

also

the

softer

comps

against

2020.

Now

as

we

move

into

2022,

I

think

we

are

on

the

path

towards

our

mid-term

guidance,

which

we

provided,

which

was

for

Research

in

the

low-single

digit

and

in

Applied

in

the

mid-single

digit.

Again,

I

would

keep

in

mind

that

especially

with

Research,

as

you're

rightly

pointing

out,

the

spending

levels

are

increasing,

the

labs

are

getting

more

occupied,

but

given the

extremely

strong

comp

versus

2021,

I

think

the

view

around

what

we

provide

for

the

mid-term

guidance

gives

you a

good

indication.

[Daniel Wendorff, Analyst, ODDO BHF AG]

Thank

you.

Maybe

a

follow-up

on

Research

Solutions,

is

that

excluding

the

COVID

sales

you

mentioned,

or

should

we

think

about

this

also

taking

into

account

COVID

sales?

[Matthias J. Heinzel]

Yeah.

This

includes

COVID

sales,

right?

I

mean,

we

indicated

already

before

that

we

expect

–

so

first

of

all,

in

2021,

we

had

COVID

close

to

€200

million

for

Research,

and

we

were

indicating

that

it

will

be

below

€100

million. The

question

will

be

how

much

below

€100

million,

so

keep

that

in

mind

when

I

provided

the

low-single

digit.

[Daniel Wendorff, Analyst, ODDO BHF AG]

Okay.

Thank

you.

[Constantin Fest, Head-Investor Relations, Merck KGaA]

I

think

we

have

time

for

one

more

question,

please.

[Operator]

We

will

take

our

final

question

from

Michael

Leuchten.

Please

go

ahead.

Your

line

is

open.

[Michael Leuchten, Analyst, UBS AG (London Branch)]

Oh,

thank

you very

much. It's

Michael

Leuchten

from

UBS.

Just

one

quick

question

going

back

to

the

order

book

and

maybe

related

to

the

slight

wording

change

on

COVID

contribution,

just

wondering

why

you

have

softened

that

wording

and

what

you're

seeing

in

the

order

intake

in

Process

Solutions.

And

then

a

quick

follow-up

on

evobrutinib,

please.

Looking

at

the

number

of

sites

that

are

located

in

Russia

and

Ukraine

for

Evolution

RMS

I

and

RMS

II,

it's

about

15%.

It's

a

meaningful

enough

number.

Given

those

trials

are

fully

recruited,

if

you

cannot

follow

up

with

those

patients

as

planned,

what

happens

then?

Are

they

just

censored

from

the

study

and

you

have

to

run

with

the

patients

that

you've

got?

Or

would

you

be

able

to

re-recruit

more

patients

elsewhere

should

that

be

needed?

Thank

you.

[Matthias J. Heinzel]

Yeah, Michael.

Hello.

It's

Matthias. Let me

address

your

first

two

question.

Indeed,

we

made

a

careful

wording

change,

and

based

on

our

view

of

the

market,

our

very

close

discussions

with

our

customers,

we

believe

that

the

€900 million

we

put

out

for

Process

Solutions

is

still

possible.

But

at

this

point

in

time,

we

will

see

that

rather

at

the

upper

end

of

the

range.

And

that

is,

of

course,

based

on

a

view

on

the

different

COVID

drivers.

We

look

at

target

vaccination

rates,

especially

the

boosters

and

also

as

we

see

now

Omicron

still

being

highly

contagious

but

with

milder

symptoms.

The

question

is, what's

the

booster

adoption

rate

going

forward?

So,

at

the

end

of

the

day,

it's

still

very

volatile.

But

we

believe

the

indication

we

provide

to

you

is

very

important

and, yeah,

we

believe

it's

more

in

the

upper

end

of

the

range.

To

your

question

on

order

book

or

usually,

we

talk

here

about

order

intake.

So

first

of

all,

we

see

the

order

intake,

the

growth

rates

coming

down

over

the

quarters.

The

growth

is

still

higher

than

prior

year

for

Q4,

but

it's

certainly

coming

down

significantly

like

you've

seen

also

from

other

market

players.

Nevertheless,

the

book-to-bill

ratio

is

still

above

1,

meaning

our

order

intake

is

still

above

the

sales

we

have.

And

then

tying

that

answer

to

my

first

point,

what

we

see

indeed

in

the

order

intake

is

that

the

COVID

share

is

significantly

coming

down.

On

the

other

hand,

the

base

business

order

intake

share

is

significantly

increasing.

But

again,

given

the

order

intake

for

COVID

coming

down,

that's

yet

another

evidence

for

our

more

cautionary

statement

on

the

€900 million

for

this

year.

[Belén Garijo López]

Peter?

[Peter Guenter]

Yeah.

Michael,

on

the

evobrutinib,

as

Belén

had

mentioned

before,

it's

really

a

moving

target.

We

are

looking

at

different

scenarios.

We

are

in,

I

would

say,

daily

contact

with

our

CRO

to

have

the

[ph]



pills (01:06:56) on

what's

happening.

And

in

function

thereof,

we

have

to

look

at

different

alternatives

if

necessary.

I

remind

you,

of

course,

that

countries

like

Russia

and

Ukraine

are

traditionally

countries

where

there's

a

lot

of

clinical

trials

ongoing

by

the

whole

pharmaceutical

market.

So,

it's

not

like

we

are

in

a

specific

position

here.

But

if

there's

more

news,

of

course,

we

will

update

you.

[Constantin Fest, Head-Investor Relations, Merck KGaA]

Thank

you

very

much

for

all

your

questions.

With

this,

I'd

like

to

hand

over

to

Belén

for

some

closing

remarks.

[Belén Garijo López]

Very

briefly, because

we

are

running

out

of

time.

Thank

you,

Constantin,

and

thank

you

for

your

continued

interest

in

our

company.

2021

was

clearly

a

record

year

in

terms

of

growth

and

margin

expansion.

And

as

we

have

discussed

today,

we

have

a

very

solid

position

to

deliver

another

successful

year

in

2022. We

look

forward

to

meeting

many

of

you

at

the

upcoming

road shows

and

conferences.

And

obviously,

we

will be

updating

you

whenever

is

necessary

as

the

year

progresses.

Thanks,

again,

and

have

a

good

evening.

[Operator]

Ladies

and

gentlemen,

thank

you

for

your

attendance.

This

call

has

been

concluded.

You

may

now

disconnect.