German conglomerate Merck KGaA has announced an 8.7% y/y increase in revenues for 2012, as pharmaceutical division Merck Serono's revenues increased 8.2% y/y.
IHS Global Insight perspective | |
Significance | Merck KGaA, the German conglomerate that includes major European pharmaceutical company Merck Serono, has announced an 8.7% year-on-year (y/y) increase in revenue for 2012, while Merck Serono's revenue rose by 8.2% y/y. Net income at the group level was down 6.6% y/y, associated with one-off restructuring costs. |
Implications | North America was the main driving force behind Merck Serono's revenue increase, with sales of multiple sclerosis drug Rebif particularly strong in the United States. |
Outlook | Merck KGaA remains cautious about its sales growth in 2013 and 2014, and Merck Serono's relatively thin R&D pipeline – which includes mostly candidates at Phase I and Phase II - indicates that major improvement could be some years away. However, thanks to its restructuring programme, net income is set to be much improved in 2013–14. |
Strong revenue growth for Merck KGaA in 2012, restructuring hits net income
Merck KGaA, the German conglomerate that includes Merck Serono, one of the largest European pharmaceutical companies, has announced its results for 2012. They show an impressive 8.7% year-on-year (y/y) growth in revenue, which reached EUR11.172 billion (USD14.556 billion). The group's operating income as calculated by IHS Global Insight also saw impressive growth, rising by 15.9% y/y to EUR2.960 billion. However, net income was down 6.6% y/y to EUR566.7 million on one-off items, amounting to EUR664 million. The group's major restructuring programme incurred substantial costs, amounting to EUR504 million, with two-thirds of this reported to have been incurred by the speciality pharmaceuticals division Merck Serono.
Merck KGaA consolidated annual financial results, 2012 | ||
Full-year 2012, EUR mil. | % change y/y | |
Total revenue | 11,172.9 | 8.7 |
- Sales | 10,740.8 | 8.4 |
- Royalty, licence and commissioning income | 432.1 | 16.6 |
Cost of sales | 3,157.7 | 13.4 |
Marketing and selling expenses | 2,410.8 | 1.1 |
Administration and royalty, licence and commissioning expenses | 1,132.0 | 9.3 |
R&D expenses | 1,511.3 | -0.2 |
Operating income * | 2,960.2 | 15.9 |
Operating margin ** | 26.5% | 1.6 pp higher |
R&D as a percentage of revenue | 13.5 | 1.2 pp lower |
Net income | 566.7 | -6.6 |
Source: Merck KGaA | ||
Merck Serono's revenue up 8.2% y/y in 2012
Merck Serono's revenue grew at a similar rate to the group as a whole, with an increase of 8.2% y/y, to reach EUR6.405 billion. Non-European markets, and particularly North America, were the main drivers of Merck Serono's sales growth in 2012. Sales in North America were up by 16.8% y/y to EUR1.334 billion on an organic basis (up 25.6% y/y when exchange-rate effects were included). In Europe, meanwhile, there was a 2.1% y/y drop in Merck Serono's organic sales growth (1.7% y/y when exchange-rate effects were included), reaching EUR2.501 billion.
Rebif and Glucophage among best performing products
Merck Serono's highest selling product in 2012 was Rebif (interferon beta-1a), used in the treatment of relapsing forms of multiple sclerosis, sales of which grew worldwide in 2012 by 7.5% y/y in organic terms, to EUR1.893 billion. Sales of this product were strongest in the US. Another strong performer for the division was type 2 diabetes treatment Glucophage (metformin), sales of which were up 14.7% y/y in organic terms to EUR400 million.
Q4 sees net income improvement
Fourth-quarter financial results were much better for Merck KGaA from the bottom-line perspective, with net income growing by a massive 104.5% y/y to EUR271.8 million, while revenue rose by 8.0% y/y to EUR2.834 billion.
Outlook and implications
Merck KGaA continued its strong revenue growth in 2012, which was slightly down on 2011's 10.6% y/y growth, although it could not escape the impact of investment in restructuring, which took its toll on the group's profitability. Although this promises to help improve the group's efficiency, it has larger concerns in the form of a relatively thin Merck Serono research and development pipeline, which compares quite unfavourably with that of compatriot company Bayer. Existing flagship products still have earnings growth potential, particularly outside of debt-crisis-hit Europe, but with the majority of Merck Serono's pipeline projects at the Phase I and II stage, it is still likely to be several years before results on these will be forthcoming. Add to this the disappointing data from the Phase III trial of glioblastoma candidate cilengitide and it completes a fairly sobering picture (see Germany: 26 February 2013: Merck Serono's cilengitide fails in Phase III glioblastoma trial). This perhaps explains the group's expectation of a "moderate" increase in sales for both 2013 and 2014, while it is predicting a much improved net income result for these years, having seen one-time costs related to its "Fit for 2018" group-wide restructuring programme peak in 2012.