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Merck KGaA
What happened? We spoke with MRCG IR ahead of Q4 results scheduled March 5th. No changes in guidance were given, and this report should be read as our interpretation of the discussion, Rx and FX trends rather than specific company guidance. BNPP View: We currently forecast group FY25 of sales/EBITDA-pre/core EPS of EUR21.2bn/6.1bn/8.36 (cons EUR21.2bn/6.1bn/8.31) and for FY26 EUR21.3bn/6.0bn/7.86 (consensus EUR21.4bn/6.1bn/8.32). Our forecasts imply revenue/EBITDA/core EPS growth of 2%/-1%/-4%, reflecting the impact from FX, Mavenclad generics (EUR400m EBITDA hit now Apotex and Hopewell have launched), EUR75m incremental financing costs related to SpringWorks, and likely disposal of the CDMO business (3% of LS sales). As a reminder MRCG has already given preliminary guidance for FY26 (low single digit organic revenue growth and an EBITDA margin around 28%) with a commitment to achieve a 30% EBITDA margin at Healthcare, despite the loss of Mavenclad in the US and ongoing Erbitux/Bavencio revenue pressures. Factors to consider for 2026 include strengthening FX headwinds (4%), robust bioprocessing trends being offset by China/academia/government weakness, tariffs across 75% of LS, and a EUR40m settlement gain in Electronics. Put together we are comfortable with our EPS forecasts for 2025 and 2026, though note consensus EPS for FY26 is 6% lower than BNPP. We anticipate FY26e consensus EBITDA forecasts to move towards EUR5.8bn. MRCG, in our view, is highly motivated to give guidance that leaves risk firmly skewed to the upside, in light of the CEO succession that takes place in May. We note clear indications of upside at Electronics (TSMC/ASML updates and AI glasses exposure for Optronics; 5% of Electronics). For more details see our recent outlook report Pharma Drama 2.0; outlook improving, will macro accommodate? and MRCG double-upgrade report Better across the board - 2026 rerating?. Investment tweet We rate Merck KGaA at Outperform with a EUR145 PT based on a...
What happened? We hosted Dr Ramkumar, an orthopedic oncologist who runs one of the biggest US centres dealing with musculoskeletal tumours. Our discussion has EU Pharma relevance for AZN (+) and MRCG (+). Focus topics included Desmoid Tumours (Ogsiveo), TGCT (pimicotinib) and NF1 PNs (Gomekli and AZN''s Koselugo). Full notes available on request. We recently double upgraded MRCG to overweight (see Better across the board - 2026 rerating?) alongside our sector outlook report (see Pharma Drama; outlook improving, will macro accommodate?). BNPP View: Desmoid tumours: Ogsiveo vs varagacestat cross-trial comparisons difficult but stiff competition coming Desmoid Tumours (DTs) are rare benign tumours that arise from connective tissue (under the skin) and while rarely fatal, cause significant pain when allowed to expand. Dr Ramkumar manages an estimated 300 DT patients in his clinic and has a specific interest in the field. Although surgery has historically been widely implemented, recurrence rates are high (up to 50%) with poor management post-surgery with off-label TKI prescriptions. Ogsiveo (MRCG) - a Gamma Secretase Inhibitor (GSI) - has more recently provided a paradigm change in treatment of DTs as the first approved treatment for patients. Dr Ramkumar cites 40-50% of his newly diagnosed patients (1,500 new DT cases per annum in US) are started on Ogsiveo and that he takes an ''active surveillance'' approach in remaining patients where symptoms do not justify the chronic treatment. Patients are generally started on treatment within a year as the tumour grows and symptoms progress. Dr Ramkumar cautioned against cross-trial comparison of Ogsiveo and varagacestat and essentially sees the two assets as similar in terms of efficacy and safety. However, varagacestat''s QD dosing (versus Ogsiveo''s BID dosing) likely to be a key differentiator given improved compliance. The main criticisms of Ogsiveo relate to its safety profile around GI side effects...
What happened? Immunome has reported positive Ph III RINGSIDE data for varegacestat (AL-102) in desmoid tumours, creating significant but expected competition to MRCG''s first-in-class gamma-secretase inhibitor Ogsiveo from 2027. Ogsiveo is currently annualising $300m with 2026-28e sales $4-600m; BNPP and consensus peak Ogsiveo forecasts $1.0/0.8bn in 2033e. There are an estimated 30k DT patients in the US with 10-11k ''actively managed''. Of these patients GSI penetration sits at just 10%. Given this dynamic, the significant ex-US opportunity and KOL feedback, we do not see the need to change our Ogsiveo forecasts at this juncture, especially when the depressed share price is considered. We recently double-upgraded MRCG to Outperform (see Better across the board - 2026 rerating?) on expectations for an improving narrative across the group in 2026. BNPP Exane View: Desmoid tumour backgrounder Desmoid Tumours (DTs) are rare benign tumours that arise from connective tissue (under the skin) and while rarely fatal, cause significant pain when allowed to expand. Although surgery is widely implemented, recurrence rates are high (up to 50%) with poor management post-surgery with off-label TKI prescriptions. MRCG''s Ogsiveo is a GSI that has represented a paradigm shift in the treatment approach with KOL feedback estimating 50% of newly diagnosed patients (c.1,500 per annum in US) being potential candidates for therapy. The main criticisms of Ogsiveo relate to its safety profile around GI side effects (nausea, vomiting and diarrhoea) and ovarian toxicity (DTs affect 3-5x more females) due to off-target effects from activation of the Notch signalling pathway. Ovarian toxicity has been seen to be reversible on cessation of treatment with KOL feedback suggesting the majority of patients still want access to treatment given the level of pain they experience with their tumour. How does varegacestat compare to Ogsiveo? Headline Ph III data compares favourably...
What happened? We published overnight our Pharma Drama 2.0 Outlook piece, and upgraded Merck KGaA from UW to OW on the rerating potential from a better narrative through 2026 across Life Sciences, Healthcare and Electronics (see Better across the board). Separately, our Medtech team (Odysseas Manesiotis) hosted an expert call yesterday with C-suite from Single Use Support, a company focused on fluid management solutions around single-use technologies for the Biopharma Industry, and competes mostly with Sartorius, Merck KGaA, and Danaher. Bioprocessing represents 40% of LS, of which we estimate 90% consumables including single-use. BNPP View: We double-upgraded overnight to Outperform with a EUR145 PT based on a blended PE and DCF valuation. We see an improving narrative across all three divisions, balance sheet firepower EUR10bn, and the incoming CEO accelerating portfolio management efforts. Our EPS forecasts post 2026 are up to 15-20% ahead of BBG consensus. 2025-30e sales/EPS CAGR 5/8% with an attractively skewed bull-bear valuation range of EUR224-88. Life Sciences channel checks highly encouraging; consensus finally in the right place with upside risks? Our Medtech team yesterday hosted the Chief Commercial Officer of Single Use Support. Commentary on revenue and order book trends provide highly positive read across, particularly with respect to consumables (90% of LS revenues with Process Solutions representing 40% of LS). Our speaker''s expectations for Q4 and FY26 revenue trends based on recent order trends screen well-above the average bioprocessing peer expectation, with both consumables and equipment expected to grow above trend in FY26. This is more positive than recent commentary from Danaher/Sartorius who expect flat equipment revenues in FY26 and in-line trend growth for consumables. Single Use Support commented Q4 consumables order growth accelerating sequentially (expecting market growth 20%) and they are expecting ''high teens-low...
We double-upgrade to Outperform with a EUR145 PT (from EUR116) based on a blended PE and DCF valuation. We see an improving narrative across all three divisions, balance sheet firepower EUR10bn, and the incoming CEO accelerating portfolio management efforts. Our EPS forecasts post-2026 are up to 15-20% ahead of BBG consensus. 2025-30e sales/EPS CAGR 5/8% with an attractively skewed bull-bear valuation range of EUR222-88. Life Sciences outlook improving, consensus finally in the right place with upside risks? The post-COVID hangover coupled with biotech/NIH funding concerns, and China softness have all masked the underlying structural growth drivers. With consensus revenue/EBITDA forecasts finally offering limited downside earnings risk, an improved focus on customer service and supply chain efficiencies set to become evident in 2026, and low-margin/FCF-negative CDMO efforts in viral vectors/mRNA likely to be divested shortly, we finally see LS being able to surprise positively over the medium term (BNPP up to 6% ahead of consensus sales/EBITDA). Fertility, atacicept royalties, and pipeline strategy offer underappreciated Healthcare upside Our Healthcare forecasts reflect near term revenue pressures being faced on Bavencio/Mavenclad/ Erbitux, though KOL feedback on the Fertility (7% of group) White House and 15% atacicept royalty that is ignored by the street (Vara consensus peak sales $2bn), point to underappreciated upside. We anticipate an accelerated pipeline pivot towards Rare Disease and sensible wind down of Oncology efforts; CEACAM5 in CRC likely to be partnered and DDR ceased. Semiconductor Solutions bottom reached? 30-40% exposure to AI/leading edge chips Mid-term target 5-9% growth with Semi Solutions (80% of divisional sales) delivering 7-11%, and Optronics roughly stable. While growth in 2026 is set to remain muted, profitability is set to jump to the ''high-20s'' following the disposal of Surface Solutions, with consensus LT...
What happened? We hosted management''s London roadshow. Key topics included tariffs and future strategy, Healthcare outlook (fertility, Immunome, Mavenclad generics and margin), Life Sciences (book to bill and outlook for SLS/LSS) and the potential for further short-term upside at Electronics. FY25 guidance has been narrowed (sales +3% CER, EBITDA 5-7% CER) to reflect strong business performance being offset by early Mavenclad generics, in our view. Consensus changes likely minor given it sits at the mid-point of the sales/EBIT/EPS guidance range. We expect sentiment towards Merck KGaA to improve but look for clarity on upcoming Immunome (competitor data for Ogsiveo) before considering turning more constructive. Recent notes of potential interest include Q3 solid, Early Mavenclad generics now likely, and Rare disease pivot in evidence at ESMO. Roadshow takeaways: . Future strategy - while MRCG''s strategy across each division is clear we anticipate the incoming CEO to accelerate efforts to address laggards (from a margin and FCF perspective) across the portfolio. The CDMO business within LSS (estimated margin 20% and FCF negative) is an obvious example. We also anticipate the ''underleveraged'' balance sheet (net debt/EBITDA 1.5x) will be more aggressively deployed. Efforts will be focused towards Life Science though valuation expectations from vendors haven''t changed much since COVID, as well as better balancing the risk profile of the Pharma pipeline whilst accelerating the pivot to Rare Disease. . Tariffs and Fertility deal - while negotiations have been delayed by the US Government shutdown, Merck KGaA is seeking clarity on what the US label for Pergoveris will look like, and whether the associated tariff waiver will extend across the group or just the Pharma business. Electronics has minimal exposure to the US with Life Sciences having a significant US footprint. While the potential tariff impact on LS was not quantified, the CFO noted the...
What happened? Q3 beat across PandL driven by Healthcare/Electronics and boosted by one-offs (PRV voucher sale and ''local legislative changes'' across LATAM helping EBITDA by EUR60m and EUR59m). Process Solutions 10% organic growth and ''very strong'' book-to-bill dynamics. Rare Diseases/Semi Materials also key highlights with a ''last hurrah'' from Mavenclad in evidence with 20% growth. FY25 guidance has been narrowed (sales +3% CER, EBITDA 5-7% CER) to reflect strong business performance being offset by early Mavenclad generics, in our view. Consensus changes likely minor given it sits at the mid-point of the sales/EBIT/EPS guidance range. We expect sentiment towards Merck KGaA to improve but look for clarity on Immunome (competitor data for Ogsiveo) before considering turning more constructive. BNPP Exane View: Group Q3 organic sales/EBITDA growth +5/9%; Life Science +6/6%, Healthcare +5/9%, Electronics +5/5%. Life Science in line with consensus with PS 10% CER, SLS +3% and LSS +5%. Healthcare momentum remains robust with top line momentum across the portfolio with the exception of Bavencio/Rebif, and tight RandD spend control in evidence. Electronics helped by HSD Semi Materials growth, partially offset by DSS declines, and modest Optronics growth. Net debt to EBITDA 1.5x. Guidance . Group sales/EBITDA-pre CER growth expectations narrowed to +3/+5-7% respectively (+2-5/4-8% previously) with FX outlook -5% to -3%. No explicit commentary has been made on Mavenclad generics, though we assume a December launch is baked into guidance. . Revised group sales/EBITDA-pre on a reported basis EUR20.8-21.4bn and EUR6.0-6.2bn (company consensus EUR21.1/6.1bn). Core EPS EUR8.20-8.60 (consensus EUR8.36, BNPP EUR8.51). Investment tweet We rate Merck KGaA at Underperform with a EUR116 TP based on a blended P/E and DCF valuation. 2025-30e revenue/EPS CAGR of 5/6% versus EU Pharma on 14x offering 6/9% CAGR. Our P/E-based valuation is EUR114 based on a sector-average 13x 2026 PE. Our...
What happened? The US Court of Appeals has rejected Merck''s Mavenclad IPR appeal on the Hopewell case against TWi Pharmaceuticals which had received its first negative decision in July 2025. The court argued that Merck has not brought any new (relevant) arguments from the previous case as their unpatentability determination claims on the ''947 and ''903 oral dosing patents were not directly challenged in the original case, and do not offer any arguments as to why these claims should be upheld. This potentially clears the path for Mavenlad generics to enter in the US after November 22nd of this year, versus current market expectations of October 2026. BNPP Exane View: MRCG''s base case assumption was that US Mavenclad (EUR0.5bn sales in 2024e) would face LOE in Oct-26. We previously highlighted the downside risk of generic Mavenclad launching in the US around year end. MRCG have communicated that they intend to file a petition for a rehearing, though recognise that today''s ruling potentially clears the path for Mavenclad generics to enter. One generic agent has tentative approval and could enter the market after November 22nd dependent on receiving final FDA approval. Taking an assumed 5-10% royalty payaway into account, we see up to 5% group EBITDA risk for 2026 as a result of a potential earlier-than-expected generic launch. While there were positives to take from the recent CMD (details here), we have been seeking clarity on the Mavenclad generic risk, upcoming competitor data to Ogsiveo in desmoid tumours from Immunome''s AL-102, and consensus forecasts to better reflect reality before we would consider revisiting our Underperform recommendation. Our 2025-30e EPS forecasts up to -9% below consensus currently. Investment tweet We rate Merck KGaA at Underperform with a EUR116 TP based on a blended PE and DCF valuation. 2025-30e revenue/EPS CAGR of 5/6% versus EU Pharma on 13x offering 6/9% CAGR. Our PE-based valuation is EUR114 based on a...
We update our model pre-3Q to incorporate latest guidance, Fx trends and company commerntary. Changes to our forecasts are minimal and we maintain our Underperform rating and EUR116 price target based on a blended average of our DCF and PE valuations.
What happened? MRCG shared long-term data from the Phase 3 MANEUVER trial of pimicotinib (CSF-1Ri) in TGCT (tumours affecting the synovial joints). Prior MANEUVER six-month data already positions pimicotinib as a potential best-in-class therapy with an ORR 50% (versus 40%-range for competitors Turalio and Romvimza). This has increased to 75% at 14 months with clinically meaningful improvements in pain and function. Romvimza, the current preferred treatment option, has not shared long-term data from their MOTION study. Turalio, which is hampered by significant liver toxicity, demonstrated a 61% ORR after 31 months follow up. With 8-10k eligible TGCT patients globally and a market likely to be worth EUR1bn, MRCG estimates EUR0.5bn peak pimicotinib sales with US/China launches in 2026e. BNPPe EUR250m risk-adjusted peak sales. BNPP Exane View: Therapeutic intervention in TGCT targets the 30% of patients with ''diffuse'' TGCT tumours which are difficult to clear with surgical intervention and see recurrence rates up to 30-35%. Approved treatment options in the US include Daiichi Sankyo''s Turalio (pexidartinib) and Ono''s Romvimza (vimseltinib) which was approved in Feb 2025. Like pimicotinib, both agents are TKIs (tyrosine kinase inhibitors) targeting the CSF-1 receptor. Turalio has been approved since 2019 but with limited sales ($37m in 2024) due to significant liver toxicity acting as a key barrier to uptake. Romvimza does not have the same black box warning as Turalio and is the current the preferred treatment option for TGCT patients, in the absence of other approved treatments. Given 25-week data and now longer-term follow-up data from the Ph3 MANEUVER trial, pimicotinib has the potential in our view to become the best-in-class treatment for TGCT. CMD feedback: We attended MRCG''s CMD last week takeaways here. The stock was weak on the margin outlook provided, and an erroneous belief that revenue guidance assumed a strong benefit from tariff-based...
What happened? We attended the CMD (dinner feedback here plus detailed notes from break-out sessions available upon request). The stock was weak on the margin outlook provided, and an erroneous belief that revenue guidance assumed a strong benefit from tariff-based contingency measures. This was refuted by the company. We note MRCG also announced a deal with the White House overnight that will see it offer its Fertility portfolio (7% of group sales and now likely to grow 5% CAGR) to US patients directly on TrumpRx at an 84% discount to list price tariffs. In exchange Pharma tariffs that were expected to have a EUR100m impact have been waived. While the shares are at our target price we look for clarity on the upcoming Mavenclad IPR appeal ruling, and competitor Immunome desmoid tumour data for Ogsiveo, before considering turning more constructive. BNPP Exane View: Group level takeaways - mid-term revenue growth expectations remain 5% with the LS, Pharma and Electronics industry expected to grow at 4-6%, 6-7% and 5-6% respectively. 80% of growth expected to come from Process/Semi Solutions and Rare Diseases (annualised sales 2-3% of group), whose underlying markets are expected to grow 9-10/5-7/10-11% respectively. EBITDA margins are expected to expand 100bps mid-term. While this is in line with consensus expectations for 2027, we note consensus has margins expanding 250bps to 31% in 2030e currently (implies low-single digit EBITDA downgrades). FCF generation is set to improve on the back of rising margins, improving capacity utilisation at LS, working capital management, and normalising capex trends. The outlook for 2026 is below the mid-term targets (LSD-MSD with a broadly stable EBTIDA margin), reflecting China/academia softness at LS, Mavenclad/Bavencio/Erbitux pressures at Healthcare, and stable DSS sales at Electronics due to muted fab capex spend. EUR10bn firepower cited for business development with Life Sciences, and efforts to pivot the...
What happened? We met with C-suite who are keen to showcase the depth of talent post recent management changes, highlight an increasing focus on improving FCF generation, announce a LS reorganisation to improve customer service, and a RandD strategy pivot towards rare diseases. MRCG recognises that the financial markets are mostly interested in Life Sciences, with the CMD focused, in part, to better highlight ''Pharma sustainability efforts'' and the structural positive outlook for Electronics. FY25 guidance reiterated, and group mid-term targets left unchanged; ''MSD revenue growth and 100bps+ EBITDA margin expansion''. (80% of growth expected to come from Process/Semi Solutions and the pivot to rare diseases at Pharma). 2025-30e BNPP/consensus at 4/5% and 4/6% respectively though we note consensus is assuming 200bps margin expansion, implying LSD EBITDA downgrades to LT consensus. LS mid-term guidance now ''MSD-HSD'', versus 7-9% previously, with 2026 growth MSD versus consensus at HSD. Separately, positive read across from Sartorius who reported Q3 8% CER sales growth (+10% Bioprocessing, -0% Lab Products) and raised FY25 revenue guidance to 7% from 6-7%. MRCG''s Process Solutions expected to grow HSD-LDD. BNPP Exane View: Healthcare; ''slight'' growth near term, MSD long-term. RandD pivot with CEACAM5 and DDR portfolio likely to be discontinued: MRCG is keen to unveil their new head of RandD, with efforts in Oncology and Immunology likely to shift in focus towards rare diseases. We anticipate development of the existing DNA damage repair portfolio and CEACAM-5 ADC across solid tumours will be scaled back, or cease. Externalisation efforts are likely to step up to drive this pivot towards rare disease and increase pipeline size, funded by the cash generative fertility and CME portfolio. RandD spend is likely to remain stable with potential to grow. Mid-term targets remain ''stable'' near term and mid-single digit longer term. There was no meaningful update...
We update our model post-Q2 and incorporate latest guidance commentary and FX trends. Revenue forecast cuts of 0% to -2% driven by a more subdued outlook for Electronics and Life Science Services, partly offset by Healthcare. EPS changes +/- 2-3% reflecting lower Corporate and Other expenses offset by lower profitability at Electronics. BNPP EPS -3-11% below consensus. We maintain our UW rating with a TP of EUR116. Our TP is derived from a blend of PE, DCF and SOTP valuations. Our DCF (WACC 8.3%, g=1%)/SOTP valuations of EUR116/134 point to upside but we note are based on robust LS/Electronics growth trends continuing well into the next decade, thereby leaving risks to the downside given the current climate. Our PE-based valuation is EUR101 based on a 11.5x 2026 PE (sector on 12x with discount justified given growing pressure on key growth drivers (Erbitux/Bavencio/Mavenclad), and anemic pipeline.
What happened? Q2 broadly in line on sales with a 4/5% miss on EBITDA-pre/EPS solely driven by Electronics (accounting and writedown charges of EUR50m), more than offsetting strengthening trends at Life Science/Healthcare. Process Solutions the highlight with 11% organic growth, book-to-bill 1, and 10% growth expected for FY25. Guidance has been updated for the SpringWorks acquisition, Surface divestment (net EBITDA impact -EUR100m), FX, and divisional dynamics. Group sales down 3% at the mid-point (now EUR20.5-21.7bn) with EBITDA-pre guidance narrowed to EUR5.9-6.3bn (midpoint in line with consensus). Consensus broadly in line with the new mid-point of the core EPS guidance range. We expect a neutral share price reaction. Bulls will cheer Process Solutions but we note Mavenclad patent risk overhang in Q4. For more details see Incorporating SpringWorks and latest trends and Mavenclad IPR appeal worth flagging. BNPP Exane View: Group Q2 organic sales/EBITDA growth +2/5%; Life Science +4/11%, Healthcare +4/20%, Electronics -6/41%. Life Science in line with consensus though outlook improving on robust Process Solutions outlook and SLS ''stabilising''. Healthcare momentum remains robust with top line momentum across the portfolio with the exception of Bavencio/Rebif, and tight RandD spend control in evidence. Electronics being hit by fab capex delays and one offs of EUR50m related to a supplier recall and purchase price accounting. Net debt to EBITDA 1.3x. Guidance . Group sales/EBITDA-pre CER growth expectations tweaked to +2-5/+4-8% respectively (+2-6/2-7% previously) with FX outlook deteriorating (-5% to -2% impact, previously -3% to 0%). Electronics sales/EBITDA-pre guidance has been downgraded with lower volumes, inventory adjustments and unfavourable pricing impacts affecting performance YTD. This is broadly offset by underlying upgrades within the LS division and reflection of SpringWorks in the Healthcare division. - Revised group sales/EBITDA-pre on a...
We update for latest business/FX trends, resulting in 2025-30e EPS downgrades of -3-8%. We also integrate the recent SpringWorks acquisition into our model using more conservative assumptions versus prior pro-forma analysis to reflect the potential competitive landscape. MRCG will provide updated guidance incorporating SpringWorks at Q2 (07-Aug). We expect underlying guidance to be in the bottom half of current FY25 corridors, reflecting HC strength being offset by a further delay in the revenue/margin recovery story at LS/Electronics. In aggregate, revised BNPP Exane EPS forecasts are 4-18% below consensus. Forecast changes reflect underlying downgrades and SpringWorks accretion from 2027e Underlying downgrades reflect delayed revenue/margin recovery stories at Electronics/Life Sciences being partially offset by Healthcare (CME portfolio offsetting Bavencio/Mavenclad downside). Incorporating SpringWorks drives revenues upgrades of +1-4% reflecting, $1bn Ogsiveo (desmoid tumours) and $750m Gomekli (NF1-PN) peak sales; physician feedback here. The EUR3bn acquisition will be debt funded with EUR150m of transaction, and EUR150m of integration costs, excluded from core results. Changes to EBITDA-pre are -1/-3/0% for 2025/26/27e reflecting increased costs from the SpringWorks business. 2028e+ changes between +3-5% including EUR100m annual synergies. Overall, the integration of SpringWorks adds 6% to our DCF-derived valuation. Investment thesis We see a difficult set up near-term given Life Science/Electronic market dynamics, uncertainty around competitor readouts for SpringWorks assets, and Mavenclad potential downside. We increase our TP to EUR112 driven by SpringWorks but maintain our Underperform rating. Our TP is derived from a blend of PE, DCF and SOTP valuations. Our DCF (WACC 8.3%, g=1%)/SOTP valuations of EUR118/132 point to upside but are based on robust LS/Electronics growth trends well into the next decade, leaving risks to the downside. Our PE-based...
What happened? Sartorius reported Q2 6% CER sales growth (+9% Bioprocessing, -4% Lab Products) and reaffirmed FY25 guidance 6% CER growth (7% Bioprocessing,1% Lab Products). This guidance does not take into account any impact from potential tariffs. Consumables performing well with industry weakness remaining across equipment sales. Based on our conversations with MRCG we expect Q2 trends for Life Science (40% of group) to be somewhat weaker than that reported by Sartorius, though note consumables represent 90% of sales for LS. BNPP Exane View: MRCG''s LS guidance for 2025 calls for 2-7% CER revenue growth and FX of 0-3%. Our FX model now points to a -3% FX headwind for the year. While Bioprocessing trends are likely to be robust (40% of LS sales) a combination of seasonality and NIH funding concerns (10% of SLS and 5% Life Science) is likely to result in LS trends overall being at the bottom end of the guidance range during H1. While order book dynamics continue to improve, and messaging remains consistent with peers, a return to mid-term growth targets of 7-9% is unlikely before 2H25. With that in mind we see consensus as optimistic; 2025-30e LS sales/EBITDA-pre forecasts -1-+1/-1-5% vs consensus. We note our 2025-30e group sales and EPS-pre forecasts are -2-3% and 2-19% below consensus. We expect the message at Life Sciences to reflect an ongoing recovery at bioprocessing being offset by SLS and LSS uncertainty. Margin progression from Q1 likely limited. Recent NIH funding newsflow (NIH memo instructs staff to pause grant termination) a positive (5% of LS sales) with a SLS recovery in H2 expected. We expect Healthcare trends to remain robust reflecting Erbitux, Mavenclad, fertility and CME offsetting Bavencio/Rebif declines. We expect materials to drive growth at Electronics, driven by AI and China but held back by the ongoing absence of a recovery at PC/iPhones. The DSS business (25% of Electronics) continues to be held back by delayed fab...
What happened? MRCG report Q2 results on Aug-7th. We expect FY25 guidance (excluding SpringWorks) to be reiterated across the group and PandL, though note strengthening FX headwinds need to be considered, as well as dynamics at Life Science/Electronics that will weigh on the revenue/margin recovery story. Negative consensus revisions likely in our view. Lastly, MRCG is appealing a negative IPR ruling on Mavenclad on July 11th (7% of 2026e group consensus EBITDA at risk). BNPP Exane View: We expect the message at Life Sciences to reflect an ongoing recovery at bioprocessing being offset by SLS and LSS uncertainty. Margin progression from Q1 likely limited. Recent NIH funding newsflow (NIH memo instructs staff to pause grant termination) a positive (5% of LS sales) with a SLS recovery in H2 expected. We expect Healthcare trends to remain robust reflecting Erbitux, Mavenclad, fertility and CME offsetting Bavencio/Rebif declines. We expect materials to drive growth at Electronics, driven by AI and China but held back by the ongoing absence of a recovery at PC/iPhones. The DSS business (25% of Electronics) continues to be held back by delayed fab capex plans (see read-x from fab newsflow). MRCG''s base case assumption is that US Mavenclad (EUR0.5bn sales in 2024) faces LOE in Oct-26. We note an oral hearing is scheduled on July 11th (11am EST) at the Court of Appeals (CAFC) regarding a negative IPR (inter partes review) ruling. This opens up a downside risk scenario of generic Mavenclad launching in the US around year end, with a ruling expected most likely by October, but could in theory be in a matter of weeks. Taking an assumed 5-10% royalty payaway into account, we see up to 7% group EBITDA risk for 2026 were US Mavenclad to go generic early. We expect underlying FY25 guidance to be reiterated but in light of recent closure of the SpringWorks acquisition (Jun-1st) expect an update at Q2. We expect an EBITDA impact in H2, including transaction costs, of...
Speaker: Belen Garijo, CEO What we learned: . Life Science recovery remains H2 weighted: recovery dynamics at Process Solutions continue to be robust. The recovery at SLS will be H2 weighted, with NIH/academia funding cuts and China cited as manageable headwinds. The CEO reiterated an expectation that the Q4 exit rate will be in line with low-to-mid single digit mid-term guidance. With respect to capital allocation the focus remains heavily skewed towards Life Sciences (private and public companies under consideration). . Is SpringWorks sufficient to return healthcare to growth? The CEO argues the resilience of the Healthcare business remains underappreciated by the business, though acknowledged RandD efforts going forward will increasingly focus on external innovation. The CEO is confident that the SWTX acquisition will be sufficient to drive the growth profile of the HC division in line with prior mid-term guidance (mid-single digit growth), citing blockbuster potential for both Ogsiveo and Gomekli. The CEO pointed out that the approach to SpringWorks''s integration could be described as an ''inverse integration'' (''de-Merckify'') with the company focusing on the launches and taking commercial control of pimicotinib. . Succession planning well in place: our impression from our CEO conversation is that a transition in the short-to-mid term is a reality and one that the company has been planning for some time. While the CEO was clear that any changes would be designed to minimise disruption and maintain business continuity, we see that a CEO change in the near-term would not be taken well by the market. Overall tone: Overall neutral tone with Life Science/Semiconductor recovery dynamics H2 weighted, more bullish on Healthcare.
What happened? Q1 broadly in line on sales with a 2% beat on EBITDA-pre helped by Healthcare RandD phasing and a 2% miss on EPS-pre on higher net financials. FY25 sales/EBITDA guidance has been nudged down to reflect potential tariff impacts, NIH funding concerns across Life Sciences and a deteriorating FX. Core EPS guidance has been provided for the first time; the mid-point of the range implies consensus EPS cuts of -6%. We expect the shares to be modestly down. BNPP Exane View: By division, Life Sciences missed by -1/3% on sales/EBITDA. Process Solutions robust with 11% CER growth and a book-to-bill ''comfortably 1x''. That NIH funding pressures and lower demand from pharma and early-stage biotech resulted in SLS and LSS CER growth declining -3/6% respectively. Healthcare came in 2/5% ahead on sales/EBITDA, helped in part by positive CME and RandD phasing effects. CME portfolio dynamics a key highlight for Healthcare thought we note Bavencio missed by 15% on growing competitive pressures across Europe. Electronics broadly in line with Semi materials up ''HSD'' but DSS (25% of Semiconductor solutions) down DD on lower project spend by customers. 2025 group sales/EBITDA CER guidance range has been nudged down with FX headwinds -3% to 0% (previously -1% to +2%). We already incorporate a -3% FX impact in our model. For more details see our recent sector report Pharma Drama; where do we have conviction? and initiation report Spring is in the air but conglomerate discount set to remain. Variance tables below Guidance . Group sales/EBITDA-pre CER growth expectations now +2-6/2-7% respectively (+3-6/3-8% previously) with FX outlook deteriorating (-3% to 0% impact). LS guidance has been trimmed to reflect tariff and NIH funding pressures. Healthcare sales/EBITDA CER guidance has been raised due to CME portfolio and RandD dynamics. Electronics CER guidance trimmed. Revised group sales/EBITDA on a reported basis EUR20.9-22.4bn and EUR5.8-6.4bn (consensus EUR21.7/6....
We spoke with Investor Relations ahead of the company''s 1Q results scheduled for May-15th. No changes in guidance were given and this report should be read as our interpretation of the discussion, Rx and FX trends rather than specific company commentary. BNPP Exane View A combination of seasonality, NIH funding concerns (10% of SLS and c.5% Life Science), and the impact of delayed capex from key semi customers (DSS 25% of Semiconductor solutions) is likely to see Q1 business trends come in at the lower end of the guidance ranges given for 2025. Ramp up costs and phasing are also likely to weigh on the Q1 Life Science EBITDA margin. FX trends are essentially neutral for Q1, according to our model, though significantly negative for the remainder of FY25 (-3-4% versus current guidance of -2% to +1%). For more details see our recent sector report Pharma Drama; where do we have conviction? and MRCG initiation report Spring is in the air but conglomerate discount set to remain. Investment tweet We rate Merck KGaA at Underperform with a EUR107 PT based on a blended PE and DCF/SOTP valuation. The Life Science/Semis recovery story will be questioned in light of market turmoil and we argue consensus remains optimistic. We view internal pipeline prospects as anaemic, though like the SpringWorks deal based on our physician due diligence. We have higher conviction elsewhere. 2025-30e revenue/EPS CAGR of 4/5% versus EU Pharma on 12x offering 6/9% CAGR. Our PE-based valuation is EUR91 based on a 10x 2026 PE; a 20% sector discount reflecting growing pressure on key growth drivers (Erbitux/Bavencio/Mavenclad) and poor pipeline prospects. Our DCF (WACC 8.3%, g 1%) and SOTP valuations are EUR118 and EUR135, with the latter assuming a 10% conglomerate discount. At the announced acquisition value of $47/share (EUR3.5bn) our pro-forma analysis points to EPS accretion of 0-16% from 2027e, a ROIC WACC from 2029e and a NPV uplift of EUR14/share.
What happened? Sartorius just reported Q1 6.5% CER sales growth (+10% Bioprocessing, -6% Lab Products), a book-to-bill ratio ''well above 1'', and provided a FY outlook that is broadly in line with consensus but doesn''t yet assume any tariff impact; 6% CER growth (7% Bioprocessing,1% Lab Products). Given market volatility the revenue range is set at 4-8% CER plus we note deteriorating FX trends. Based on our conversations with MRCG we expect Q1 trends for Life Science (40% of group) to be somewhat weaker than that reported by Sartorius. BNPP Exane View: MRCG''s LS guidance for 2025 calls for 2-7% CER revenue growth and FX of 0-3%. Our FX model now points to a -2% FX headwind for the year. While Bioprocessing trends are likely to be robust (40% of LS sales) a combination of seasonality and NIH funding concerns (10% of SLS and c.5% Life Science) is likely to result in LS trends overall being at the bottom end of the guidance range during H1. While order book dynamics continue to improve, and messaging remains consistent with peers, a return to mid-term growth targets of 7-9% is unlikely before 2H25. With that in mind we see consensus as optimistic; 2025-30e LS sales/EBITDA-pre forecasts -3-5/-6-11% below consensus. We note our 2025-30e group sales and EPS-pre forecasts are -2-5% and 8-20% below consensus. Key points: . We launched on EU Pharma last night (see Pharma Drama; where do we have conviction?). With respect to Merck KGaA, we initiated Underperform (see Spring is in the air but conglomerate discount set to remain) with a EUR107 PT based on a blended PE and DCF/SOTP valuation. The Life Science/Semis recovery story will be questioned in light of market turmoil and we argue consensus remains optimistic. We view internal pipeline prospects as anaemic with the market seeking clarity on SpringWorks. We have higher conviction elsewhere. We publish proforma analysis and positive physician feedback on recently in-licensed pimicotinib and key SpringWorks...
We initiate at Underperform with a EUR107 PT based on a blended PE and DCF/SOTP valuation. The Life Science/Semis recovery story will be questioned in light of market turmoil and we argue consensus remains optimistic. We view internal pipeline prospects as anaemic with the market seeking clarity on SpringWorks. We have higher conviction elsewhere. We publish proforma analysis and positive physician feedback on recently in-licensed pimicotinib and key SpringWorks assets. Apparent valuation support but stronger narrative required to drive rerating Our 2025-30e EPS forecasts are -8-20% below consensus, primarily driven by more muted expectations for Healthcare and the margin outlook at Life Science. 2025-30e revenue/EPS CAGR of 4/5% versus EU Pharma on 12x offering 6/9% CAGR. Our PE-based valuation is EUR91 based on a 10x 2026 PE; a 15% sector discount reflecting growing pressure on key growth drivers (Erbitux/Bavencio/Mavenclad) and poor pipeline prospects. Our DCF (WACC 8.3%, g 1%) and SOTP valuations are EUR118 and EUR130, with the latter assuming a 10% conglomerate discount. SpringWorks due diligence and proforma analysis Merck''s interest in SpringWorks has been publicly disclosed. We like the strategic rationale and provide positive physician feedback on key assets Ogsiveo and Gomekli for desmoid tumours and NF1-PN. These efforts would make an interesting portfolio with the recently in licensed pimicotinib for TGCT. We estimate a deal done at a EUR3.2bn EV would be 0-16% EPS accretive from 2027e, generate a ROIC WACC from 2029e and provide an uplift of EUR14/share to our DCF valuation. Life Science expectations leave risks to downside While order book dynamics continue to improve, and messaging remains consistent with peers, a return to mid-term growth targets of 7-9% is unlikely before 2H25, especially in light of rising NIH funding concerns (5% of LS sales). With that in mind we see consensus expectations as overly optimistic; BNPP Exane 2025-30e...
Merck''s confident messaging on Process Solutions order intake and its ability to navigate tariff risk should be encouraging to investors. However, with pockets of weakness ongoing, limited clarity on the potential SpringWorks deal and modest negative consensus revisions likely, a return to the earnings upgrade cycle and share price outperformance still seems some way off. Neutral retained. Modest haircuts to forecasts but trajectory unchanged; 2024-28 EPS CAGR = 7% We have trimmed our forecasts reflecting weaker Fx tailwinds and higher financing charges at the EPS level. This lowers our sales, EBITDA and Core EPS estimates by 1-3%. However, our underlying forecasts are largely unchanged, with 4Q performance and guidance for 2025 very consistent with commentary at the 4Q CMD and from peers, with 2025 a ''bridging year'' for Life Science as it continues to return to Merck''s medium term growth targets. 4Q takeaways (1) Positive messaging over PS momentum, with strong order intake (low teens sequential growth in 4Q) and book to bill above one; (2) uncertainties on pace of LS growth recovery are China, US Pharma demand and NIH budget risk (5% of LS sales); (3) well positioned to mitigate tariff risk to LS given recent move to ''in region for region'' supply chain model (20 US plants); (4) enpatoran (oral TLR7/8i) failed in SLE on primary endpoint but ''promising responses'' in pre-specified subgroups supports progress to P3; (5) Merck will remain disciplined in MandA and only execute HC MandA if low risk (no comment on SpringWorks deal). Reiterate Neutral; Price target of EUR160; implies 16.1x 2026 PE for 7% EPS CAGR Our 2025 Core EPS forecasts put Merck on 15.0x 2025 PE in return for a 2024-28 EPS CAGR of 7%. Our TP is based on a blend of DCF and EV/EBITDA SOTP, with a 15% conglomerate discount applied, which we believe is unlikely to be lifted unless the outlook for Healthcare improves or we return to an upgrade cycle for Life Science.
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Life Science peers commentary consistent with expectations for 2025 to be a bridging year We have updated our model based on 4Q trends and recent comments from Life Science (LS) peers. We believe commentary from peers and recent performance is consistent with Merck''s commentary that 2025 will be a bridging year with a slowly improving LS trajectory. Despite this, we trim our 2025 margin assumptions, with our ''25-28E EBITDA pre 1-4% below VA consensus. Lowering forecasts on pace of LS margin improvements; 2024-28 EPS CAGR = 7% We lower our previously above consensus 2024-28E sales, EBITDA and Core EPS estimates by 1-5%, reflecting moderated assumptions for the pace of margin progression within Life Science to better reflect ramp up costs, strategic RandD investments, Fx impact and bonus payments. We believe recent commentary from peers is consistent with our view that 2025 remains a ''bridging year'' for Life Science, with FY growth likely modestly below Merck''s mid-term 7-9% target. 4Q preview; LS trends improving sequentially; guidance consistent with bridging year Merck will report 4Q on March 6. We expect 4Q CER growth in sales/EBITDA of 3%/11% underpinned by very strong HC EBITDA growth due to lower RandD spend and LS growth improving sequentially. We expect Process Solutions to exit 2024 growing at mid single digits and anticipate initial Group guidance to look for ''moderate to solid'' Group sales growth (i.e. 3-6%) and ''solid to strong'' EBITDA growth (i.e. 5-10%) but with our forecasts in the lower ranges of these bands. Reiterate Neutral; Price target of EUR160; implies 15.7x 2026 PE for 7% EPS CAGR Our 2025 Core EPS forecasts put Merck on 15.3x 2025 PE in return for a 2024-28 EPS CAGR of 7%. Our TP is based on a blend of DCF and EV/EBITDA SOTP, with a 15% conglomerate discount applied, which we believe is unlikely to be lifted unless the outlook for Healthcare improves or we return to an upgrade cycle for Life Science, both of which we believe...
All 3 divisions growing, messaging broadly consistent with confident picture at CMD Although 3Q Life Science and Electronics slightly missed consensus sales expectations, we view Merck''s 3Q performance and commentary over improving order intake and order quality in Process Solutions (PS) as very consistent with positive messages at its recent CMD. This should reassure over the outlook for gradually improving sales growth and margins from here. Minor forecast changes; 2024-28 EPS CAGR = 7% We have made minor changes to our forecasts, with modest increases to 2025 earnings reflecting lower Healthcare RandD spend with this normalising in 2026. We continue to assume 2025 remains a ''bridging year'' for Life Science with PS normalising but with FY growth modestly below Merck''s mid-term 7-9% target with modest margin improvement pending improving capacity utilisation. 3Q takeaways (1) PS seeing sequential improvement in order intake and order quality; (2) 4Q PS expected to trend back towards mid term targets with 2025 a ''more normal'' year; (3) LS performance and outlook still reflects a more muted China outlook and soft US pharma demand; (4) Healthcare RandD spend will see gradual return to normal levels in 2026; (5) Merck believes recent pimicotinib P3 data is competitive suggesting it is likely to take up its global rights option; (6) Bavencio no longer expected to grow; (7) Visibility on broader semis market recovery still low. Reiterate Neutral, TP to EUR160; return to earnings upgrades needed for upside Our 2025 Core EPS forecasts put Merck KGaA on 16x 2025 PE in return for a 2024-28 EPS CAGR of 7%. Our TP is based on a blend of DCF and EV/EBITDA SOTPs, with a 15% conglomerate discount applied, which we believe is unlikely to be lifted unless the outlook for Healthcare improves or we return to an upgrade cycle for Life Sciences, which seem unlikely near-term.
What happened? Merck has reported 3Q24 results. BNPP Exane View: Merck has reported 3Q results that we view as broadly in-line with expectations for a recovery of growth, with continued positive commentary over an expected gradual recovery in Life Science. Although 3Q sales slightly missed expectations, this looks to be partly driven by one-time factors, including a poorly modelled prior period COVID-19 payment in Life Science Solutions and a slower broader market recovery in Electronics, which we believe has been widely flagged. Importantly, Process Solutions was in-line with consensus expectations and commentary that book-to-bill remains around 1 is encouraging. While the beat on profitability was helped by continued very strong Healthcare margins helped by lower RandD spend which won''t be sustainable long-term, EBITDA margins within Life Science were broadly as expected which is again encouraging. With updated guidance implying only very minor negative sales revisions and no meaningful changes to consensus earnings, we expect investors to be reassured that consensus forecasts are now reasonable. However, we continue to believe Merck will need to deliver a fix for its Healthcare division and/or see a return to the upgrade cycle within Life Sciences for outperformance. Key financials . Group (sales +1.8% CER, sales/EBITDA pre/EPS pre were 1% below/4% above/in-line cons): 3Q Group sales (+1.8% CER), EBITDA pre (+16.9% CER) and EPS pre (+11% reported) were 1% below, 4% above and in-line with consensus, respectively, with EBITDA pre returning to organic growth after six successive quarters of decline and helped by lower Healthcare RandD spend. . Life Science (sales: +2.1% CER, sales/EBITDA pre were 2% below and 1% below cons): Within this, the key Process Solutions and Science and Lab Solutions segments were in line with consensus, with commentary underlining continued sequential order improvement in Process Solutions and a book-to-bill again around one....
All 3 divisions to grow, but we moderate our assumptions on the pace of recovery We have updated our model based on 3Q trends and Merck''s recent CMD. Although the CMD painted a confident picture on Merck''s future growth and the long-term Life Science outlook, we have moderated our assumptions on the pace of recovery and margin development for both Life Science and Electronics. Our 2025-28 sales/EBITDA pre are 2-6% below VA consensus. Lowering forecasts on pace of LS and Electronics recovery; 2024-28 EPS CAGR = 7% We lower our previously above-consensus 2024-28E sales, EBITDA and Core EPS estimates by 1-9%, reflecting a slower pace of recovery of Merck''s Life Science and Electronics divisions. We assume 2025 remains a ''bridging year'' for Life Science, with FY growth modestly below Merck''s mid-term 7-9% target and only modest margin improvement pending improved capacity utilisation. 3Q preview; return to growth expected; EBITDA pre underpinned by strong HC performance We expect Merck to deliver 3Q CER growth in sales/EBITDA of 3%/12% underpinned by very strong HC EBITDA growth due to lower RandD spend. Our EBITDA forecasts are in-line with VA consensus but are below on Life Science and Electronics sales, with low single digit growth putting each on track for the low end or slightly below current full year guidance ranges. We expect Group guidance to be reiterated but with this at the lower end of current ranges. Reiterate Neutral, TP to EUR160; return to earnings upgrades needed for upside Our 2025 Core EPS forecasts put Merck KGaA on 17x 2025 PE in return for a 2024-28 EPS CAGR of 7%. Our TP is based on a blend of DCF and EV/EBITDA SOTPs, with a 15% conglomerate discount applied, which we believe is unlikely to be lifted unless the outlook for Healthcare improves or we return to an upgrade cycle for Life Sciences, which seem unlikely near-term.
What happened? Merck KGaA yesterday hosted its annual CMD in Darmstadt providing a strategic update with commentary on mid-term targets, followed by breakout sessions with the management of each of the three divisions. BNPP Exane View: The event portrayed a confident picture of Merck''s future growth outlook and the ongoing recovery of its Life Science division, with revised mid-term targets putting it broadly on track with consensus expectations (see note here). Although a more challenging outlook in China moderates bull cases for Life Sciences and the likely pace of a recovery remains somewhat uncertain given muted early research spending and lack of explicit margin guidance, updated mid-term targets should significantly improve investor confidence. However, transformational MandA seems unlikely to materialise in the near-term and we continue to see challenges to Merck''s ability to invigorate its Healthcare business, with investors likely to continue to see this as very much a show me story given recent pipeline failures. Key takeaways: . Confident in growth outlook; transformational acquisitions seem less likely. Key points: (1) Merck''s three pillar growth strategy is here to stay, with management outlining its strong track record of delivering consistent 8%/12% sales/ EPS growth over the last 15 years; (2) FCF is expected to improve going forward as capex requirements normalise; (3) Life Science will remain the focus for capital allocation but transformational deals seem less likely given a broader focus on innovation across the Life Science portfolio; (4) management clearly recognise the need to accelerate business development in Healthcare, with bolt-on de-risked commercial/pre-commercial asset acquisitions clearly on the table; (5) margins are expected to improve based on operational leverage and efficiencies but explicit quantification remains limited. . Life Science recovery mode underway but pace of delivery and margin outlook still...
What happened? Merck KGaA will host its annual CMD in Darmstadt today providing a strategic update with commentary on mid-term targets, followed by breakout sessions with the management of each of the three divisions. BNPP Exane View: This morning''s release includes a reset of mid-term expectations for both Healthcare (pipeline failures) and Life Science (soft China). However, these revised targets have very much been anticipated by investors in our view and imply minimal revisions to consensus. Importantly 2024 guidance is reiterated and revised Life Science targets are slightly better than feared with the lower end of the range maintained. We expect management to outline its otherwise strong confidence in mid-term dynamics of both Life Science and Electronics at today''s event, with industry de-stocking in the rear view mirror for Life Sciences. Management has reiterated that Life Science will be the predominant target for capital allocation, but with an increased urgency to address the weak outlook for Healthcare, with business development and ''lower risk'' bolt-ons being targeted to address this. We continue to believe that Merck must address its Healthcare business for us to be more constructive. . Life Science mid-term outlook lowered modestly to 7-9% growth (from 7-10%) but 2024 guidance reiterated. We believe the revised Life Science outlook largely reflects expected softness in China (10% of sales) and this has been largely anticipated by investors, with maintenance of the lower end of the range a slight positive surprise (VA consensus looks for a 2024-2028 CAGR of ~8%). We expect Merck to otherwise confirm its confidence in the medium and long-term growth prospects for the division, with industry de-stocking now largely in the rear view mirror and with a progressive return to growth expected. Group guidance for 2024 has been reiterated. . Healthcare growth outlook lowered on pipeline failures; Electronics raised on AI-applications. We...
Consistent messaging on Life Science recovery reassuring; divisional trends unchanged As in prior quarters, Merck''s strong 2Q performance was driven by Healthcare and Electronics with Life Science in-line with expectations. While we believe consistent messaging on a ''gradual sequential recovery'' for Life Science over 2H will reassure following mixed commentary from peers and Electronics is tracking ahead of expectations, we view the Healthcare beat as less sustainable given weakness in key growth drivers (inc. Bavencio) and margin upside on lower RandD spend. Positive near-term revisions on Healthcare margins and Semis recovery, Life Sci unchanged Near-term Healthcare margins should benefit from lower RandD spend from 2H which we believe largely underpins the divisional guidance raise, with Electronics also set to benefit from initial signs of recovery in certain Semi end-markets. Life Science messaging/expectations are unchanged. Takeaways from 2Q24 call; consistent messaging on Life Science and capital allocation 1) Messaging on a gradual LS recovery remains consistent with sequential QoQ growth in orders, book to bill remaining ''around 1'' and a Q4 exit rate ''towards its MT guidance'' and notes that the ''vast majority'' of its customers now have destocking behind them, 2) failure of xevinapant does not change capital allocation priorities - a ''substantial'' proportion of MandA firepower will be allocated to Life Science with low-risk, near-term accretive, US focussed in-licensing preferred in Healthcare, 3) MRK remains committed to a LSD MT CAGR for Healthcare despite lack of late-stage pipeline optionality, Bavencio competition and the Mavenclad LoE (Cons 2024-28: 0.5%). Healthcare pressure offsets Life Science and Semis recovery; reiterate Neutral, EUR165 TP We raise our near-term sales/EBITDA pre forecasts by 1-4% and our target price to EUR165 (from EUR160) to reflect strong 2Q performance, a stronger Healthcare margin supported by lower RandD spend and...
What happened? Merck KGaA has announced that it has agreed to sell its Surface Solutions business to Hong Kong listed, pearlescent pigments producer, Global New Material International (GNMI, not rated) for EUR665m. BNPP Exane View: . An inevitable solution for Surface: Speculation over an eventual sale of Surface Solutions, Merck''s smallest and likely lowest margin business unit, has long existed and hence today''s announcement will likely be viewed as an inevitable conclusion. Given Surface Solutions makes up 2% of Merck group sales (FY23A: EUR411m), its divestment, which is expected to close in 2025 does not have a material impact on Merck''s group financials. The proposed divestment of Surface focusses Merck''s Electronics division on the more attractive end-markets covered by its Semiconductor Solutions and Display Solutions businesses. . 1.6x EV/sales, estimate 9-11x EV/EBITDA in-line with precedent transactions: A purchase price of EUR665m implies an EV/sales multiple of c.1.6x. While Merck does not disclose profitability below the divisional level we note prior commentary that Surface Solutions margins are notably lower than the c.30% guidance for the Electronics division and we believe a high-teens level might be more appropriate which would support an EV/EBITDA of c.9x. This would be broadly in-line with the c.9x BASF sold its pigments business to DIC for in 2019 and the c.11x Clariant divested its pigments business for in 2021. . Proceeds to boost MandA firepower: Merck notes that it will use the net proceeds from the divestment to further strengthen its strategic core businesses. Prior to deal close, we believe Merck could have over EUR14bn available for MandA by end-24 (at 3.5x net debt/EBITDA pre) with our preference for larger amounts of capital to be allocated to Life Science and with an acceleration in in-licensing preferred for Healthcare where we believe pressure to look at commercial of lower-risk late-stage assets has increased...
We see three truths for Merck: 1) it has a leading Life Science business, 2) Healthcare RandD has historically disappointed, 3) there is unlikely a scenario in which the Group is broken up. While we have increased optimism in the mid-term outlook for Life Science and Electronics from 2H24, the recent failure of blockbuster hopeful xevinapant leaves Healthcare facing structural challenges with current growth drivers set to fade, which could drag the division into decline. MandA might be the only near-term fix. We preview Q2 results (01-Aug) and ask ''Is there life beyond Life Science'' for Merck? Xevinapant failure a further blow to Healthcare outlook; questions over sources of growth Healthcare has historically delivered MSD growth, with late-stage pipeline optionality previously supporting continued MSD growth over the mid-term, through the Mavenclad LoE. Competitive pressures to Bavencio and failures of evobrutinib and xevinapant leave Healthcare facing a structural challenge with sales now likely to decline from 2026 and with no meaningful pivotal readouts ahead. 2Q24 preview: LS/EL headwinds easing, guidance achievable but scope for EL upgrade Merck will report 2Q24 results on 01-Aug. We expect sequential QoQ improvements in performance, supported by gradual recovery in Life Science and Electronics, with Healthcare growth moderating vs a tough comp. We expect FY24 guidance to be broadly reiterated, with scope for the Electronics outlook to be raised given better visibility on Semis recovery and Display. We expect Life Science commentary to be consistent with a mid-year inflection, with orders sequentially improving, lead times reducing and Merck targeting a 4Q exit rate in-line with its MT guidance range (LS: 7-10%). Need for Healthcare fix offsets inbound Life Science recovery; reiterate Neutral, EUR160 TP Successive failures of evobrutinib and xevinapant have removed pipeline optionality, with MandA likely the only near-term fix for the...
Health is wealth. And for biotech, the lifeblood of pharma innovation and a key driver of the Life Science and CDMO sectors, wealth is also health. The recent collapse in biotech funding has raised questions over the outlooks for LS/CDMO. But the prognosis is improving. Our comprehensive examination of the biotech funding environment shows biotech cash balances are now increasing, with IPO and fundraising activity picking up. Despite some softness in Q2, we believe the data support a discussion on when rather than if funding will recover. In our coverage, we see Lonza (+) and Siegfried (+) as best placed to benefit from funding tailwinds. Merck KGaA (=) and EUROAPI (=) face near-term structural pressures.
MRK SFZN LONN EAPI
Merck reported 1Q24 results with sales in-line but EBITDA/EPS 7% ahead of expectations supported by Healthcare and Electronics, with an offset from Life Science. Quantified FY24 guidance implies a marginally stronger EBITDA outlook, with Life Science slightly weaker and Healthcare slightly stronger. We found commentary on improving Life Science dynamics encouraging, supporting an incoming inflection in growth from mid-year, though we continue to believe Healthcare remains structurally challenged with late-stage/commercial MandA now likely required. TP to EUR160 from EUR155. Reiterate Neutral. 2H inflection incoming: consistent Life Science messaging with added Semis optimism Encouragingly, Merck spoke to bioprocessing trends unfolding as expected, with orders growing QoQ and YoY, book to bill at ''around 1'' and lead times falling. Merck expects the ''majority'' of customers to have destocking behind them by end-Q2 and already sees large customers moving back to consistent ordering patterns. We found commentary on an ''early 2H'' inflection in Semis more upbeat, supporting improving group momentum and a return to organic growth into 2H24. Strong Healthcare performance likely moderates; xevinapant interim in Jun/Jul next catalyst Strong Q1 Healthcare performance benefitted from competitor stock outs (Fertility, Saizen), weak comps (Erbitux, Rebif) and the repatriation of Bavencio rights. With the ''yet to come'' effect of competition to Bavencio, competitor stock-outs fading and stronger comps, we see Healthcare growth moderating from Q2. Importantly, the xevinapant interim remains on track for Jun/Jul but with a base-case that the trial continues to a 2025 final read unlikely to prompt any announcement. Evidence of Life Science recovery building but Healthcare fix still required; reiterate Neutral Headwinds to Life Science are easing, with consistent commentary reducing risk that a recovery is later than expected. That said, trends are yet to materialise,...
4Q23 to be more of the same; Healthcare strength offset by Life Science and Electronics Building on YTD trends, we expect Q4 to remain challenging with HC strength (competitor stock-outs, Bavencio repatriation) offset by LS (destocking, funding, China, SAP migration) and EL (semis). In-line with prior commentary, we expect FY23 results to come in at the bottom end of guidance for Sales/EBITDA CER growth of -2% to +2% and -9% to -3% respectively. Merck will report on 07-Mar. FY24 guidance to support return to growth, but likely muted We expect divisional dynamics to shift YoY with HC facing headwinds (end of competitor stock-outs, Bavencio/Mavenclad competition) but a gradually improving outlook for LS and EL as destocking pressures ease and semis turns. We expect FY24 group guidance to support a return to growth, but likely muted, and look for sales/EBITDA pre growth in the LSD range (i.e. ''slight growth''). Margin re-set required with timing/strength of Life Science recovery key swing factor Given pressures from low utilisation, idle costs and the inclusion of a positive one-off in Life Science 1Q23 EBITDA pre, we expect Group EBITDA pre margins to contract YoY despite cost savings given absence of SGandA spend in Healthcare previously destined for evobrutinib. We expect further downward revisions to consensus margin forecasts and believe peer commentary from results so far takes a ''bull-case'' scenario for an early and aggressive recovery in Life Science off the table. We continue to view a ''gradual'' recovery in Life Science from mid-year as a base-case, with downside risk from this being later or slower than expected. We view recovery as the key swing factor for FY24. HC fix and evidence of LS recovery required; Reiterate Neutral, EUR155 TP With the failure of evobrutinib presenting a structural challenge to HC and our belief that risks to a LS recovery lay to the downside, we see reasons for near-term caution despite continued longer-term optimism....
We are updating our forecasts in our systems to match forecasts shown in our recently published report Healthcare fix and evidence of LS recovery required. Due to a technical glitch there were previously very minor differences. The updated numbers now match those we outlined in our report to investors.
No real surprises at the group level as the management had already given some indications at the recent Investors Day. Display Solutions and Life Science Services were a positive surprise, whereas the weaker sales from the Mavenclad franchise was a slight negative. The good news was that development remained on the expected trajectory and, in particular, the fact that Process Solutions may have seen an inflection point in terms of orders. The Group’s profitability was 9.4% ahead of our expectations (consensus: +4.2%).
3Q23 to remain challenging with HC strength offset by LS/EL; lower end of ranges likely Building on 1H23 trends, we expect Q3 to remain challenging with strength in Healthcare given competitor stock-outs and repatriation of Bavencio economics offset by Life Science (destocking, funding, SAP migration) and Electronics (semis). We believe FY23 results are likely to come in at the lower end of currently wide guidance ranges and see mid-points as a stretch, with scope for narrowing down of ranges at Q3, despite Merck confirming its outlook at its recent CMD. Incremental caution from peers to keep destocking in focus; will Q3 mark the bottom? Commentary from key Life Science peers was mixed over Q3 with Sartorius offering a dose of optimism (orders recovering, book to bill 1.0x) in contrast to more measured tones from Danaher and TMO (no inflection in orders, book to bill 1.0x). With Merck''s prior commentary pointing to a Q3 trough with sales recovering into 1H24, we expect commentary on order dynamics and book to bill to be scrutinised with the benefit of reporting late providing good visibility on run rates into year-end. Further margin pressure given low utilisation and SAP migration While Q3 will benefit from the repatriation of Bavencio economics to support Healthcare margins, we expect continued low levels of utilisation in Process Solutions and Semiconductor Solutions to weigh on group margins. With a ''very complex SAP migration'' emphasized at the recent CMD, we see an incremental headwind for Merck''s SLS business weighing on Q3 with some residual impact in Q4 but remain hopeful in a return to structural growth from 2024 as temporary headwinds ease. Structural mid-term growth story to re-emerge following trough Q3; Reiterate Outperform Despite a still challenging near-term outlook with the mid-points of current FY23 guidance ranges looking a stretch, we are hopeful Q3 will mark the bottom as temporary headwinds ease. With visibility...
Merck’s investors day had no negative surprises. However, we were given the first glimpses of 2024, which gave us a positive impression. Additionally, the management was confident of meeting the 25by25 target, but was a bit shy about explaining how it believes the existing delta will be organically closed. The breakout sessions provided some helpful insights.
Reassuring messaging on near-term recovery and mid-term structural trends Merck provided reassuring messaging at its CMD, confirming its FY23 guidance, setting the scene for a return to growth in 2024 and outlining a rebased mid-term outlook which reiterated the substance of existing targets. While near-term headwinds will continue to weigh on 2023 performance as guided, we believe visibility is improving on a return to structural growth from 2024. Life Science: Undented confidence in structural growth as near-term headwinds ease With the impacts of destocking well known, Merck reassuringly reiterated prior messaging on the easing of headwinds with Process Solutions. Management offered confidence that weakness did not reflect underlying use/demand and reassured that high exposure to consumables and a broad/diverse customer base should insulate SLS from the weaker investment activity impacting peers. With undented confidence in structural trends, the MT outlook looks bright for Life Science. Healthcare: evobrutinib data in Dec-23 key but may not answer main outstanding question Having remained committed to its 4Q23 timeline, we expect to see first pivotal data with evobrutinib in Dec-23. However, it remains unclear whether Merck will be able to share data supporting action on disease progression at this point. We therefore see potential for an overhang to remain until the benefit/risk profile is better characterised which we view as key to overcoming known concerns over liver toxicity from a benefit/risk perspective and hence to the asset''s commercial potential. Electronics: waiting for the cycle to turn... With megatrends supporting potential for significant semis volume/value growth, Merck remains confident in a 2024 recovery as the market inflects. With strong positioning as a partner of choice, ambitions for 200-300bps of outperformance vs the market (MSI) remain in-tact. Shares reflect pessimistic scenario ahead of return to structural...
CMD an opportunity to re-frame mid-term outlook and highlight structural growth drivers Merck KGaA will host its CMD on 19-Oct. With 2023 impacted by headwinds to Life Science (destocking, funding) and Electronics (Semis/LC demand), we view the event as an opportunity for Merck to re-frame its mid-term outlook and re-focus the narrative back on its structural growth. Near-term headwinds to push current 2021-25 mid-term targets out of reach With near-term headwinds likely persisting into 1H24, we believe current mid-term targets will be pushed out of reach. While we have increased conviction in MSD growth for Healthcare on strong execution, weak funding, destocking and questions over the longer-term outlook for biologics manufacturing moderate our Life Science outlook below 2021-25 guidance (+5% vs 7-10%), with our forecasts for Electronics remaining at the bottom end of current ranges (+3% vs 3-6%). We revise down our underlying group sales/EBTIDA pre forecasts by 3-6%, leaving our 2025 sales forecasts below Merck''s EUR25bn target, but broadly in-line with consensus (both c.EUR24.3bn). But reiterated confidence in sustainable structural growth should reassure Despite our moderated optimism on Life Science performance, we expect Merck to reiterate its confidence in the longer-term structural growth potential of its three pillars and expect a re-framed 2023-27 outlook to largely adopt a roll-forward of current 2021-25 targets. Importantly, we see a HSD growth outlook for Life Science despite short-term pressures and expect investors to look closely for hints of Merck''s confidence in a likely recovery in early 2024, along with commentary on the safety profile of evobrutinib which will be key to continued MSD growth in Healthcare. Shares reflecting very pessimistic scenario: Reiterate Outperform Although headwinds for the Life Science sector have dragged through 2023, we expect Merck to reassure over a return of sustainable, structural growth...
When two businesses face headwinds, the third does the job. This is why we are so in favour of Merck’s multi-industry business model. Life Science and Electronics are facing some headwinds after the boom, which makes 2023 something of a transition year – especially due to the fact that the negative effects will remain around for longer than previously expected. In 2024, things should become easier. Investors welcomed the reported Q2 figures, which were a beat to consensus (sales: +1.0%; adjusted EBITDA: +3.7%).
FY23 guidance cut widely expected; Improving Life Science visibility removes ST overhang With a guidance cut widely expected and visibility on a 1H24 recovery in Process Solutions sales improving, we see the ''destocking'' overhang on Merck''s shares lifting. While questions remain over the commercial potential of evobrutinib (pivotal data in 4Q23), we believe investor expectations are low, which combined with eased EPS downgrade risks suggests positive risk/reward. Life Science: Temporary near-term pressures to give way to undented mid-term confidence We expect destocking, negative mix and lower utilisation to suppress Life Science performance through to year-end. However, with equipment/consumable use remaining strong, impacts from weakness in biotech funding manageable and Merck regaining market share in China, we see the easing of temporary near-term pressures giving way to undented structural mid-term growth. Healthcare: Confident in evobrutinib 4Q23 timeline Following a delay to timelines with Sanofi''s tolebrutinib in RMS, Merck''s continued confidence in evobrutinib''s 4Q23 readout likely secures a first-in-class launch. While we expect an overhang to remain until the benefit/risk profile of evo is established, wider Healthcare performance continues to be strong, driven by Mavenclad and Fertility. Electronics: Semis proving resilient despite delayed recovery; Display momentum turning While risks over a 2024 recovery in semi materials remain given limited visibility, robust DSandS performance supports continued outperformance for Merck relative to a weaker market. Profitability remains dependent on Semi utilisation but with improving Display momentum now supportive. Negative earnings revision risk behind us; undented structural mid-term growth With Life Science visibility improving, further downwards revisions to guidance/earnings seem unlikely. Although clarity on evobrutinib''s profile will likely be required for a substantial re-rating,...
Temporary near-term headwinds to push FY23 guidance out of reach We update our forecasts to reflect incremental near-term pressures on Life Science and Electronics, with a partial offset from Healthcare. Our updated forecasts sit at the very bottom of current FY23 group CER growth guidance which we expect to be revised down with Q2. However, viewing near-term headwinds as temporary rather than structural, our mid-term forecasts are broadly unchanged. Persistent destocking and low utilisation to weigh on near-term Life Science outlook With peer commentary supporting persistent destocking and weakening demand, we adopt a more conservative view on near-term Life Science dynamics. While we believe Merck will be more insulated than peers due to its portfolio and positioning, it is not immune from incremental sector weakness, which we expect to weigh more heavily on base-business performance. We expect lower utilisation to have a disproportionate impact on profitability, with FY23 margins falling to pre-COVID levels. Our updated forecasts sit below guidance with low visibility adding further uncertainty. Limited signs of semi end-market recovery; Healthcare strength provides partial offset Visibility on a recovery in semiconductor end-market demand remains low with our updated forecasts reflecting a more pessimistic near-term outlook for Electronics where lower utilisation will likely weigh on margins. With pressures building for Life Science and Electronics, we do see robust Healthcare performance providing a partial offset but remain conscious that an overhang will likely persist until the benefit/risk profile of potentially transformational evobrutinib becomes more clear, likely on publication of pivotal data in 4Q23. Guidance cut reflected in price; structural mid-term growth story to re-emerge Despite a worse near-term outlook, our mid-term forecasts remain broadly unchanged supported by our view that temporary headwinds will give way to the...
The management released the detailed FY guidance, which was a blow to our fairly optimistic expectations. This can be partly explained by our overly-optimistic stance on Life Science and Electronics. We see this guidance as quite realistic in that it reflects the many ifs and whens. However, the Q1 figures comfortably beat out expectations (sales: +0.1%, consensus: +0.4%; adjusted EBITDA: +6.2%, consensus: +3.3%).
Challenging Q1 but with pockets of resilience Merck likely faces a challenging Q1 with destocking in Process Solutions weighing on Life Science growth, COVID-19 infection impacting Fertility in Healthcare and end-market weakness in Semis and Display depressing Electronics growth/margins. While disappointing Q1 prints from Sartorius and downbeat commentary from Danaher have led to nervousness on the bioprocessing sector, we continue to view Merck as more insulated - but not immune - from near-term headwinds with commentary from Thermo Fisher supporting this thesis. Optimistic that tough 1H will give way to 2H weighted recovery; improving visibility key With bioprocessing headwinds expected to moderate and easing macro pressures likely lending support to a rebound in Electronics growth/profitability, we remain optimistic in the building blocks of a 2H weighted recovery - which should be boosted further by the termination of Merck''s Bavencio collaboration with Pfizer. However, with Q2 financial performance also likely muted, we expect visibility on improving market dynamics to be key to re-building confidence in the near-term narrative. FY23 guidance intact; expect quantitative update to cover prior qualitative ranges We expect Merck to issue updated quantitative FY23 guidance which broadly covers its existing qualitative ranges on an underlying basis. Termination of Merck''s Bavencio collaboration with Pfizer should be a small tailwind (and LSD accretive to EPS from 2024) and we expect improving performance in 2H to underpin guidance. We expect the quantification of FY23 guidance to broadly look for group CER sales growth in the 2-5% range with EBITDA pre declining by 0 to -4% CER. You''ve got to be in it to win it; 2H weighted return to resilient growth, unstretched valuation With FY23 framed as a year of two distinctly different halves, we remain optimistic that a 2H weighted recovery coupled with increased visibility on potentially...
Investment step-up contributes to margin step-down; supports confidence in M-LT outlook With new Life Science capacity ramping up and preparation for the launch of potentially transformative evobrutinib underway, we view margin contraction implied by guidance as a function of a conscious decision to accelerate investment. As a broader based growth story begins to emerge, we view investment as necessary to drive future growth in structurally attractive end-markets and believe it signals management''s confidence in the mid-to-long-term outlook for the Group. 1H23 headwinds to give way to a 2H weighted recovery; guidance risks to the upside Framed as a transition year, our updated estimates look for FY23 top-line growth of +4% CER with 1% CER contraction in EBITDA pre to allow for investment. Our more optimistic view on margins relative to guidance is supported by our assumptions over the strength of base business growth in Process Solutions and in Merck''s ability to manage Electronics margins within its ''around 30%'' range. With 1H headwinds expected to give way to a 2H weighted recovery, we view guidance risks as to the upside but do not expect this to materialise until greater visibility on 2H dynamics is seen. Increased optimism on potentially transformative evobrutinib; peak sales raised to EUR3.5bn In conjunction with our detailed therapeutic note on the BTK inhibitor class (PHARMACEUTICALS: BTK inhibitors: Same same, but different), we raise our de-risked peak sales forecasts for evobrutinib to EUR3.5bn. Our base-case assumes a first-in-class launch with a competitive clinical profile and manageable safety. Importantly, increased optimism improves visibility on continued Healthcare top-line growth through the Mavenclad LoE in 2026/7 and supports continued investment behind new launches and in RandD as we enter the start of a multi-year period of increasing newsflow. Reiterating Outperform on emerging broader based growth story; target price...
Merck reported a good set of figures fully achieving the guidance. However, the firm did not manage to beat our higher expectations (sales: -1.2%; adjusted EBITDA: -6.8%) nor those of the consensus (sales -0.3%; adjusted EBITDA: -3.8%). We are nonetheless fine with the miss as it does not change our strong view on Merck. On a closer look, this miss mainly stemmed from the various developments in Life Sciences, where COVID-19-related business decelerated faster than anticipated and where there were some hiccups in the CDMO franchise.
Broad-based growth story on track ahead of potentially transformative year for Healthcare We have revised our forecasts to reflect a more significant decline in COVID-related sales in 2023, dragging on sales and EBITDA by 1-2%, with weakened Fx dragging on EBITDA by a further 2-3%. Despite this, we remain confident the broad-based growth story is on track, with strong underlying Life Science growth expected and view Merck as more insulated than peers against near-term destocking. We view 2023 as a potentially transformational year for Healthcare with focus squarely on the anticipated 4Q23 readout of pivotal trials with oral BTK inhibitor evobrutinib in RMS. Solid end of year expected; FY23 likely incorporates MSD growth outlook Merck will report 4Q22 results and issue qualitative FY23 guidance on 2nd March. We expect Merck to deliver a solid end to FY22 and to deliver on its narrowed guidance ranges. We expect FY23 guidance to broadly incorporate group top-line growth in the MSD range (+5% CER), with EBITDA pre growth slightly below (+4% CER). Our divisional forecasts look for Life Science and Healthcare growth in the MSD range with LSD growth in Electronics and EBITDA pre growth in the LSD range for Life Science, with MSD growth in Healthcare and Electronics. Underlying conviction unchanged; changes reflect additional COVID declines and FX Given commentary from Life Science peers and vaccine manufacturers, we adjust our Life Science forecasts to incorporate a c.90% YoY decline in COVID-related bioprocessing and CDMO/CTO revenues (vs -60% previously). We now expect COVID to represent a c.EUR700m headwind to FY23 top-line growth with greater EBITDA pre impact. Updated FX adds an incremental 2-3% headwind however our conviction in Merck''s underlying growth profile remains unchanged. Reiterate Outperform on emerging broad-based growth story; valuation unstretched At 18x 12m forward P/E, Merck trades modestly above its 10-year average despite...
Life beyond Life Science; broad-based growth story supports robust mid-term outlook With a fading COVID contribution giving way to a high-quality underlying bioprocessing growth story and growing traction for Life Science Services, we see robust structural trends and the favourable phasing of new capacity supporting a resilient outlook for Merck''s largest, highest margin and fastest growing Life Science division. Combined with a more favourable Healthcare narrative building ahead of a period of increasing newsflow, we expect a broad-based growth story to emerge and believe Merck is well positioned for the mid-term with further optionality from potentially transformative MandA. Growth momentum maintained; unveiling high-quality underlying Life Science growth story While we expect 2023 to look like 2022 at a group level with MSD top-line growth slightly ahead of EBITDA pre, dynamics between Merck''s three divisions are in flux. In Life Science, we forecast HSD top-line growth with high-teens underlying Process Solutions growth helping to offset a c.EUR500m COVID-hole and soften margin contraction to c.100bps. Our MSD Healthcare outlook sees margins pressured by required investment in RandD/SGandA with Electronics margins likely finding a floor as Semis driven growth offsets further Display contraction to support a LSD top-line outlook. Healthcare momentum building; transformational MandA back on the cards - likely LS targets 2023 marks the start of a multi-year period of increasing newsflow for Healthcare which could reassure on the division''s top-line growth prospects post-Mavenclad LOE. Pivotal data from internally developed evobrutinib marks as an important proof point that the RandD engine is beginning to deliver. Further, with a strong track record and EUR15-20bn of firepower, 2023 could also see Merck flex its balance sheet. We expect bolt-on/business development deals focused on building the Healthcare pipeline but also see potential for more...
The Q3 results were once again above our expectations (sales: +2.4%; adjusted EBITDA: +1.5%) as well as the consensus (sales: +1.6%; adjusted EBITDA: +1.5%). However some investors required more explanations so as to give the share price a strong intra-day reversal, which we have not see for quite a while. The management provided the explanations required to understand all the moves in the reported figures and the fine-tuning of the guidance has not changed our positive view.
Merck reported another estimate-beating quarter. We hope investors will not be too upset when Merck’s performance no longer meets expectations. This might take quite a while as a second driver has joined Performance Solutions: Semiconductor Solutions. The latter seems to be able to stabilise its high growth rates. Healthcare lagged behind more than expected. Our estimates were beaten by +5.5% at the top line and by +9.9% at the adjusted EBITDA level (consensus: +2.7% and +4.5%, respectively).
Life Science has been a clear pandemic winner. But with vaccine demand in decline, what''s the prognosis for this innovative sector? Is it immune to post-COVID contraction or starting to look under the weather? We place the Life Science sector and Merck''s leading offering under the microscope, dissecting the key bioprocessing and manufacturing segments. We test for growth drivers, trends, strategy and competition, providing a 360 view of the risks and opportunities facing Merck''s largest, most profitable and fastest growing division. Results are back and the charts look promising. Underlying trends support a healthy outlook with a pre-pandemic valuation leaving the shares looking oversold. We diagnose a structural winner. Our prescription? A closer look at this Life Science champion.
Merck’s figures were once again strong although they didn’t beat consensus by that much (sales: +0.3%; profitability: +0.4%). Our expectations had been a notch too high (sales -0.7%; profitability: -0.4%), which we do not see as meaningful as the miss at the profitability level mainly stemmed from too-high corporate costs. Investors seemed to have an issue with the new detailed guidance, which left little room for consensus revisions. The lowered guidance for Covid-19-related sales might be an explanation.
Life Science upgrade cycle continues despite softer COVID outlook Despite a more cautious outlook for COVID derived sales, Merck''s FY22 guidance implies continued upside to assumptions for its Life Science division driven by robust base-business growth, offering a higher quality, more sustainable outlook. Our revised group forecasts are 4-5% above pre-FY21 consensus at the EBITDA pre/EPS level. We view Merck''s Life Science driven growth prospects (2021-25E sales/EPS CAGR = 7/9%) as undervalued and believe that with additional capacity primed to come on-line over the next 12 months, Merck is becoming better positioned to capitalise on the positive dynamics of the underlying Life Science market. Mavenclad recovery key for Healthcare; delivery remains focus for near-term momentum We view recovery of the high-efficacy, dynamic MS market and of Mavenclad as the key swing factor for Healthcare guidance and assume continued Q1 disruption with subsequent recovery in our base-case. While 2022 is set to be another quiet year for key de-risking newsflow, we look for robust base-business growth and continued penetration of Bavencio in the 1Lm UC setting as proof points important for near-term momentum until the pipeline moves into focus from 2023/4. Third consecutive year of double-digit Semis growth supports Electronics outlook Within Electronics we forecast a third consecutive year of double-digit growth for Semis, with a full year of strong DSandS project demand building on top of robust base business and semi materials growth. With customers continuing to invest in capacity to address both the ongoing chip shortage and expectations for strong future demand, we believe that market fundamentals look solid. Reiterate Outperform; EUR220 TP reflects strong fundamentals with trimmed SOTP At 17x 2023e PE and 12x 2023e EV/EBITDA, Merck trades at a 24%/15% premium to EU Large Pharma but at a 42%/30% discount to our basket of global Life Science/CDMO peers....
Merck reported a good set of figures, but profitability did not fully match our very optimistic expectations (sales: 0.9%; adjusted EBITDA: -4.1%). Likewise for consensus (sales: +1.3%; adjusted EBITDA: -1.3%). It looks as if pharma was troubled by something temporary but nothing structural. Nevertheless, the company fully delivered towards its guidance. The strong dividend proposal and the qualitative guidance make us quite optimistic for the current year.
This looks to be the new motto of Merck’s refurbished R&D pipeline. The strong cut in clinical programmes (50% up to 11/11/2021) has been quietly done. This reminds us of 2014/15, when Merck did something similar. This time, the trigger might have been the understanding that a drug candidate could not be developed in all and every suitable indication. This should be positive for the R&D spend.
We are not about to forget Process Solutions’ continued strong momentum, but Electronics has stepped quite impressively on the stage in recent quarters due to the roaring demand for chips from many industries. Healthcare was quite good, but suffered a bit from its Chinese business. The lifted guidance confirmed our strong view on Merck. The next potential catalyst might be the update on Merck Healthcare’s R&D pipeline on 22/11/2021.
Merck’s investors day was impressive. The company’s management was very positive about the group’s future performance as a whole and by the developments of each division. We had been very positive already in the past and there is no reason to change this. The different developments of the divisions is an advantage as we never believed in conglomerate discounts. However, besides all the enthusiasm, we remain cautious regarding Healthcare, where we need additional information to get a deeper understanding.
Q2 beat and raise with increased mid-term optimism but where do we go from here? Following a strong Q2 beat and raise, Merck''s shares have rallied a further c.17% fuelled by positive commentary supporting more optimistic mid-term outlooks for Life Science and Electronics. With confidence in the durability of bioprocessing tailwinds growing and semiconductor market fundamentals remaining robust, we expect Merck to upgrade mid-term guidance at its CMD on 9th Sept but believe this is already broadly reflected in consensus forecasts. With the shares breaking new highs we find it difficult to justify further upside on fundamentals alone. Structural trends support underlying upgrades to mid-term Life Science outlook Increased CDMO capex spend, strong levels of clinical activity and the continued shift of drug development towards novel therapeutics and smaller biotechs support potential for an upgraded ''mid-teens'' outlook for Merck''s underlying Process Solutions business, in our view. Combined with a likely improved ''mid-single-digit'' outlook for Research Solutions, we believe the underlying growth prospects of Life Science now sit above Merck''s existing mid-term guidance. CMD focus on ''Big 3'' with upgraded c.EUR2bn capex ceiling to support longer-term growth With the ''Big 3'' likely the key focus of the CMD we expect Merck to outline a new, elevated up to EUR2bn capex ceiling to support investment in building out capacity for its bioprocessing and semiconductor materials businesses. We believe the outlook for both businesses is fundamentally strong and see an upgrade to mid-term expectations for Semiconductor Solutions to ''high-single-digit'' as possible. Although we continue to rule out large MandA, Merck''s firepower is growing. Reiterate Neutral rating with increased TP of EUR190; difficult to justify further upside At c.24x 2022 PE Merck''s shares seem to be already reflecting anticipation of further significant consensus upgrades and/or that...
We are still puzzled about Merck’s high-flying performance. The name has – again – outpaced our strong view, beating us at the top line (+4.5%; consensus: +2.2%) and at the EBITDA pre level (+10.5%; consensus: +7.7%). All three (!) divisions reported stronger than expected figures, driving profitability exceptionally high from low comparables. Sales stood at the highest watermark ever and EBITDA pre was only higher in Q3 20 (including a provision revision). Nevertheless, these figures confirm our strong view.
Strong bioprocess demand leaves room for Life Science upgrades but capacity limits upside With capacity expansion projects and process optimisation ongoing and competitor reports suggesting very strong demand, we expect Merck to report very strong Q2 results and see room for Life Science guidance to be raised. We increase our Life Science estimates by 1-2% to move slightly above management''s guidance for the division. Despite this, recent share price moves seem to imply more material upgrades than we believe are realistic given capacity constraints. Growing confidence COVID-19 tailwinds are more durable into 2022 Following a series of ''beat-and-raise'' Q2 prints from Life Science peers, near-term COVID-related tailwinds clearly continue to be strong. More importantly, we see evidence this demand will be more durable into 2022 than previously expected with longer-dated vaccine contracts, emerging variants and continued global vaccination roll-outs as drivers. We expect robust growth from non-COVID projects to mitigate the (increasingly unlikely) risk of COVID-demand plummeting. Recovering healthcare market dynamics reduce downside risk to Healthcare new launches Although competitor commentary suggests continued muted cancer diagnosis rates, company Q2 reports are thus far consistent with expected progress towards normalisation of healthcare systems as pandemic pressures ease. Importantly, a recovery in the MS switch market to close to 90% of pre-pandemic levels should support a return to QoQ growth for Mavenclad whilst Symphony Health sales data supports continued strong Bavencio uptake following approval in the 1Lm UC setting. Reiterate Neutral with TP of EUR168; capacity constraints limit Life Science upgrade cycle Merck''s shares have rallied c.28% since its upgraded FY21 outlook was quantified. Although at 21x 2022 PE Merck''s shares still trade at a 31% PE discount to Life Science peers, we view upside to growth prospects from the Life...
Q1 beat and raise lays foundations for an exceptional FY21... We have increased our near-term forecasts significantly given a strong outlook for Life Science, which continues to emerge from COVID-19 as a structural winner, and see room for additional incremental top-line upgrades given an acceleration in capacity expansion. However, we continue to believe capacity constraints will likely weigh on Merck more than peers, tempering room for positive surprises. ...with more modest mid-term top-line upgrades as COVID tides begin to turn Merck''s expectation for COVID-related revenue development in 2022 suggests more modest room for mid-term upgrades to Life Science, in our view. As COVID tides turn from a 2021 peak, the likely loss of c.EUR400m of COVID-related sales in 2022 represents a 5% drag to Life Science growth. To justify further upgrades to consensus expectations, either an acceleration in growth for the base-business or better performance from COVID-related sales is required. Margin outlook likely tempered longer term with 2021-25 EPS CAGR of 8% achievable While an upgraded top-line view supports a year of exceptional margin expansion as investment struggles to keep pace, we expect margins to normalise thereafter, as the contribution of higher-margin COVID-projects fades and strategic investment in mid-/long-term initiatives increases. As a result of this, our longer term EPS forecasts increase only modestly, reflecting improved finance and tax. Our revised forecasts suggest delivery of a 2021-25E EPS CAGR of 8% is achievable. Reiterate Neutral rating; target price of EUR160 At 17x 2022 PE Merck''s shares are trading at a 12% premium to Pharma peers despite only comparable growth but a 28% PE discount to Life Science peers who are more levered to current upside from COVID-related tailwinds. While the recent pullback in the shares suggests greater value at the current price, we retain our Neutral rating given more limited room for...
We have no doubts that the Q1 figures show the reality, which is impressive in Life Science! After the release of the preliminary figures, the only questions left were about the pattern and the momentum. HealthCare’s growth was a bit less pronounced and that of Electronics was subdued due to the still ongoing decline in Liquid Crystals.
Merck’s preliminary figures came in a bit out of the blue, but street expectations were too moderate (adjusted EBITDA: -15%). We were more positive, but our miss was still expected to be -12%. However, this underpins our strong view.
Will capacity limitations take the shine off the Process Solutions upgrade cycle? Life Science is emerging from COVID-19 as a structural winner. Demand for bioprocessing equipment has surged and we believe the pandemic will act as an accelerator for already positive market dynamics leading to durable long-term growth. However, we feel the shares already reflect continued upgrade momentum, while potential for capacity constraints to slow the upgrade cycle over the near-term is less well appreciated. In the world of bioprocessing; capacity is king. Too much of a good thing: striking a balance between capacity expansion and utilisation With the pandemic validating the benefits of pharmaceutical innovation, we believe a step-up in underlying clinical activity will support a sustained period of strong growth for Life Science. Our forecasts are modesty above guidance and we see incremental upside to margin assumptions. However, we feel upgrades are already reflected in the shares and are likely to be capped by capacity constraints and investments, as Merck seeks to preserve high utilisation rates and invests for selective expansion of its CDMO and CTO offerings. Healthcare pipeline shows promise, but is it enough to sustain mid-term growth? Merck''s Healthcare division has historically underwhelmed, delivering only a handful of new assets in the past 20 years. With Mavenclad potentially losing exclusivity in 2026/7, there is a pressing need for the pipeline to deliver. We forecast EUR3.1bn in de-risked peak sales from Tepmetko, evobrutinib and xevinapant and are optimistic that an improved cadence of launches can continue. Although we do not assume transformation to an industry innovator, we do see signs of promise. Initiate with Neutral; target price of EUR160 At 18.8x 2022e core P/E and 28.9x 2022e EV/FCF, Merck trades at a 28% and 62% premium to EU Large Pharma peers respectively and a 25% P/E discount to Life Science peers. We forecast a...
... and with sound optimism into 2021. Merck’s Q4 figures fully confirmed our strong view on the share. All three divisions contributed to the development, according their respective strengths. Guidance and the higher dividend both support our thinking. Nevertheless, the pandemic will still have a negative impact here and there, if virus mutations invalidate the vaccination efforts. Consensus was met.
