Merck Serono, the biopharmaceutical division of German chemical conglomerate Merck KGaA, has announced that its revenue in 2014 declined by 1.4% year on year (y/y) to EUR5.975 billion (USD6.69 billion), although its sales were up by 1.7% y/y.
IHS Life Sciences perspective | |
Significance | Merck Serono, the biopharmaceutical division of German chemicals group Merck KGaA, recorded a 1.4% year-on-year (y/y) reduction in its revenues during 2014 to EUR5.975 billion (USD6.69 billion), but achieved a 1.7% y/y increase in sales. |
Implications | Emerging markets continued to be the driver of Merck Serono's sales growth in 2014, as was the case during 2013. |
Outlook | Merck KGaA continues to show stable growth and has made strategic acquisitions to help fund a continued expansion of R&D activities, particularly within its Serono division. With emerging markets continuing to promise sales growth in the foreseeable future, Merck Serono appears to have a solid platform on which to build for potential new products, when they emerge from the pipeline. |
German chemicals conglomerate Merck KGaA has released its annual report for 2014, including its financial results, which show an increase in the group's total revenue of 3.7% year on year (y/y) to EUR11.5 billion (USD12.87 billion). As the group reports, this was down to organic growth, but also Merck KGaA's acquisition and integration of AZ Electronic Materials into the German company's Performance Materials division.
Merck Serono revenues down slightly, but sales up
Merck Serono, the biopharmaceutical division of Merck KGaA, recorded a slight decline in overall revenue, of 1.4% y/y, to EUR5.975 billion, mainly due to the continued decline in income from royalties, licences, and commission (down 48.5% y/y). Sales of the division were up, however, by 1.7% y/y, in reported terms, which includes a 1.9% reduction due to negative foreign-exchange effects. There was a significant increase in research and development (R&D) expenses, which were up 14.1% y/y at EUR1.3 billion. A 9.3% y/y increase in the cost of sales also contributed to a significant decrease in operating income.
Merck Serono, financial results, full-year 2014, EUR mil. | ||
| 2014 | Y/Y, % change* |
Total revenue | 5,975.0 | -1.4 |
-Sales | 5,783.3 | 1.7 |
-Royalties, licence and commission income | 191.7 | -48.5 |
Cost of sales | 1,119.7 | 9.3 |
Marketing and selling expenses | 1,780.2 | -1.8 |
Royalty, license and commission expenses | 518.3 | -5.3 |
Administration expenses | 219.7 | 8.5 |
R&D expenses | 1,343.7 | 14.1 |
R&D expenses as a % of total revenue | 22.5 | 1.2 pp higher |
Operating income** | 993.4 | -23.3 |
Operating margin*** | 16.6 | 4.8 pp lower |
*based on adjusted figures for 2013 **calculated by IHS Life Sciences – total revenue minus cost of sales, marketing and selling expenses; royalties, licence and commission expenses; administration expenses; and R&D expenses *** Calculated by IHS Life Sciences – operating income as a % of total revenue pp = percentage points Source: Merck KGaA | ||
Emerging markets continue to drive Serono's sales growth
In regional terms, in Europe, the region in which Merck Serono has its largest sales, there was a reduction in total sales for the division of 1.7% y/y to EUR2.4 billion, which includes a slight 0.3% reduction due to negative exchange rate effects. Sales in North America grew by 0.9% y/y overall, while the largest growth seen by the division was in emerging markets, where sales were up 8.2% y/y (by 13.5% in organic terms). As a result, the proportion of Merck Serono's total sales accounted for by emerging markets grew two percentage points to 29%, while the proportion accounted for by Europe slipped one percentage point to 42%.
Merck Serono, sales by region, 2014 (EUR mil.) | ||||
Sales, 2014, EUR mil. | Organic growth (%) | Exchange rate effects (%) | Total change y/y (%) | |
Europe | 2,424.3 | -1.4 | -0.3 | -1.7 |
North America | 1,291.9 | 1.0 | -0.1 | 0.9 |
Emerging markets | 1,666.9 | 13.5 | -5.3 | 8.2 |
Rest of World | 400.2 | 5.2 | -5.6 | -0.4 |
Total | 5,783.3 | 3.6 | -1.9 | 1.7 |
Source: Merck KGaA | ||||
Rebif sales down slightly on greater competitive pressure
Sales of Merck Serono's best-selling drug, relapsing, remitting multiple sclerosis treatment Rebif (interferon beta-1a), fell in organic terms by 0.2 y/y to EUR1.84 billion. As the company states in its annual report, the decline was not as great as it might have been expected to be, considering the growing competition from oral formulations in this disease area. Organic growth in the sales of the drug in emerging markets amount to 21.1%, considerably higher than growth in any other regions.
Erbitux sales rise organically by 5.9% y/y
Sales of Merck Serono's second-best-selling drug, Erbitux (cetuximab), used primarily in the treatment of metastatic colorectal cancer and metastatic non-small-cell lung cancer, grew in organic terms by 5.9% y/y to EUR903.7 million, while negative exchange rate effects hit Erbitux sales with a 3.4% reduction. Once more, in the case of Erbitux, it was emerging markets where the highest growth was seen – 18.1% y/y in organic terms.
The company's third-highest-selling treatment Gonal-F (follitropin alpha), a recombinant hormone used in the treatment of infertility, increased in total sales by 7.1% y/y, with negative foreign-exchange effects factored in, to EUR628 million. Emerging markets was also the region with the highest sales growth in this case.
Consumer Health revenues up 3.2% y/y
The Consumer Health division, which includes over-the-counter medical products, saw an increase in total revenues of 3.2% y/y, including negative foreign-exchange effects, to EUR768.8 million. Europe was the most important region for this division in growth terms, with sales up 5.2% y/y to EUR361.1 million; sales of the division in emerging markets increased by 2.5% y/y, to EUR385.8 million.
Outlook and implications
Merck KGaA continues to pursue an expanding programme of R&D in its Merck Serono division, as it seeks new products to refresh its product portfolio, following a challenging period in terms of R&D setbacks. The group's acquisition of Sigma-Aldrich, a chemical and biochemical products maker for the life sciences industry, announced in September last year, is intended to maintain a steady and predictable income to balance the risk involved with its growing R&D programmes.
The group's strategy to place additional focus on emerging markets, announced in 2013, is also bearing fruit. Although sales in its traditionally strong markets in Europe and North America have stagnated and in some cases declined, these have been balanced out by growth in sales in emerging markets. Increased investment in biosimilars, and the opportunities that these offer in emerging markets in particular, is also a key element of Merck Serono's strategy.
Merck Serono has an oncology candidate, evofosfamide, in Phase III trials in two separate indications, as well as in several other Phase II and Phase I trials for different indications, while also having a number of other oncology candidates in early and mid-stage trials. Besides these, it has a number of candidates in early to mid-stage clinical trials in immuno-oncology, immunology, and neurodegenerative diseases. It also has an assisted reproductive technology product, Pergoveris (follitropin alfa _ lutropin alpha), at the Phase III stage.