Group strategy

We focus on innovative and top-quality high-tech products in the Healthcare, Life Science and Performance Materials business sectors. The company’s goal is sustainable and profitable growth. We intend to achieve this by growing organically and by further developing its competencies, as well as by making targeted acquisitions that complement and expand existing strengths in meaningful ways. Building on leading products in all its businesses, we aim to generate income that is largely independent of the prevailing economic cycles. Moreover, the aim is to further expand the strong market position in emerging markets in the medium to long term. In 2014, the Emerging Markets region contributed 38 % to Group sales.
Biopharmaceuticals
Our biopharmaceutical business aims to become a preferred global biopharmaceutical partner through its enduring commitment to transforming patients’ lives with innovative specialty medicines, leading brands and high-value solutions. Global megatrends such as world population growth and a general increase in life expectancy are bolstering the demand for our products. We are well-positioned for sustainable growth.
The first pillar of our strategy is to deliver innovation globally. The portfolio decision-making process has been improved and a rigorous project prioritization implemented with shorter timelines to phase transitions. Efficiency in R&D has been strengthened with the development of biomarkers to improve patient outcomes, with a focus on selected core therapeutic areas and with the creation of Translational Innovation Platforms. The biopharmaceutical business has three priority development programs: atacicept in immunology, evofosfamide (TH-302) in oncology and avelumab in immuno-oncology, an anti-PD-L1 antibody that we will develop and commercialize with Pfizer as a potential treatment for multiple tumor types.
The second pillar of our strategy is to maximize the existing portfolio in developed markets. In the Multiple Sclerosis franchise, the vision is to remain a leader by providing innovative solutions that include drugs, devices and services to help people living with multiple sclerosis. 
The biopharmaceutical business plans to fully exploit the potential of Rebif®, its top-selling product, in an increasingly competitive multiple sclerosis market and to position it as the best interferon-based therapeutic option for patients who suffer from the relapsing form of the disease, driving differentiation via smart injection devices and the first multiple sclerosis e-Health platform.
In Fertility, the focus is on expanding market leadership and on providing innovative services and technologies beyond drugs.
In Oncology, we promote the value of Erbitux® to personalized treatments, especially in Europe and Japan, and emphasizes the importance of offering patients complete testing for RAS status in order to ensure optimum treatment. We will also ensure launch readiness in these innovation-driven markets. Through the co-promotion of Xalkori® with Pfizer, we are entering the U.S. oncology market and preparing for the future launch of its anti-PD-L1 antibody.
The third pillar of our strategy is to expand further in Emerging Markets. With a growing middle class, extended health care coverage, a shift towards chronic diseases, and rising demand for biologics, Emerging Markets are a key driver for us, accounting for over 60 % of organic growth between 2011 and 2013. 
In Emerging Markets, the biopharmaceutical business is implementing strategic growth initiatives in its General Medicine and specialty medicine franchises to address specific needs. The business is leveraging capabilities and local channels, for example by extending the breadth and depth of promotion in China, expanding its portfolio via regional and local licensing, and supporting market developments in Fertility.
The business is also investing selectively and growing its flagship brands with new formulations (Euthyrox® or Glucophage®), fixed-dose combinations (Concor®) and devices (Saizen®). We are repatriating business, taking back the promotion of our products from industry partners where attractive. And it is expanding the focus of its portfolio with growth initiatives in biologics.
Biosimilars
The Biosimilars business is committed to providing access to high-quality biologics to more patients all over the globe. The unit is developing a biosimilars portfolio focused on oncology and inflammatory disorders, through both in-house research and development expertise in biologics, and partnerships with other biosimilar players. The initiation of Phase III trials is planned for 2015 / 2016 onwards.
Biosimilars is an attractive market in which our company is well-positioned as it can build on existing strengths and capabilities across the biosimilars value chain. This includes the ability to leverage internal assets or source capabilities from suppliers to ensure compliance with regulatory requirements, secure market access across key markets such as the Emerging Markets region, leverage commercial manufacturing capabilities and flexibility, as well as adopt a tailored go-to-market approach.
We have also established strategic alliances with Dr. Reddy’s in India to co-develop several oncology compounds and with Bionovis in Brazil to supply the Brazilian market with biological products under the Product Development Partnership (PDP) policy of the Brazilian Ministry of Health.
This is to be expanded by another, as yet undisclosed in-licensing agreement for a late-stage biosimilar.
Allergopharma
The market for causal allergy therapies is a global growth market. On the one hand, the global market growth expected by market researchers will be generated by an increasing number of people with allergies, and on the other hand it is based on the growing use of specific immunotherapy (SIT) in many emerging markets. 
Allergopharma is a manufacturer of diagnostics and prescription drugs for allergen immunotherapy (AIT). AIT (hyposensitization, desensitization, allergy immunization) is the only causal therapy for treating allergies to unavoidable allergens. AIT is primarily carried out by physicians who specialize in allergies, such as ENT doctors, dermatologists, pediatricians and pulmonologists.
With its own research department and in cooperation with research institutes and other partners, we are helping develop a better understanding of the immunological mechanism that underlies the development of allergies and is actively working on the next generation of drugs for allergen immunotherapy.
Plans to expand production in Reinbek near Hamburg in 2016, thus expanding capacity, will advance global expansion and will also help to meet the increasingly high manufacturing standards. As was previously the case, products to diagnose and treat type 1 allergies such as hay fever or allergic asthma will be manufactured here under ultrapure, sterile conditions.
Consumer Health
In 2012 and 2013, Consumer Health undertook steps to strategically realign the internal organization while sharpening its focus on core brands and particularly attractive key markets. In 2014, Consumer Health forged ahead with its growth agenda, particularly in the emerging markets of Latin America and Southeast Asia.
As a result, Consumer Health achieved organic sales growth of 5.4 %, clearly exceeding general market growth. To this end, the company is pursuing a clear strategy: The aim is for Consumer Health to achieve a market share of at least 3 % by 2021 in each of its top 20 markets (including France, Mexico, Brazil, Germany, Indonesia, India, and the United Kingdom), with at least three brands in leading positions. 
An important milestone within the framework of this strategy was the transfer of the Neurobion® and Floratil® brands from the biopharmaceuticals business to Consumer Health in 2014. Neurobion® is a leading global brand in the vitamin B segment and Floratil® is a leading brand in the probiotic antidiarrheal segment in Brazil. Following their transfer to Consumer Health in 2014, both brands clearly demonstrated potential to focus more closely on consumer wishes and needs in core markets. For instance, the growth of Floratil® in the key market of Brazil increased more than tenfold.
Further important components of implementing the “3 x 3” strategy are geographic expansion of existing brands into new markets, such as the recent market launch of the Bion® brand in Brazil, as well as possible inorganic growth through tactical takeovers and product acquisitions, as long as these are in line with the strategic direction.
Life Science
Our life science tools business is one of the leading players in the attractive global life science tools industry. The business has a global presence across the laboratory and process markets – two broad customer sub-segments with differing needs. The strategy in laboratory markets is based on three success factors: a broad and attractive portfolio, a simple customer interface and an organization able to deal with complexity, for example more than 70,000 products serving over 1 million customers. The three key success factors for the process markets strategy are a deeply technical field force, product depth in developed markets as well as portfolio breadth in emerging markets.
The business will focus on expanding its presence across laboratories in emerging geographies as well as gaining share of wallet in North America. We aim to continue to grow above market by accelerating growth in the process solutions and key laboratory businesses. This includes maintaining above-market R&D investments to remain on the innovation forefront, solving customer needs and delivering sustainable, profitable growth.
The planned acquisition of Sigma-Aldrich would establish one of the leading players in the life science industry, fostering key capabilities fully in line with our strategy.
Performance Materials
The demand for high-tech products in general and for innovative display solutions in particular has seen high global growth in recent years. This trend is not expected to weaken in the coming years. Instead, we assume that increasing demand for these types of consumer goods will come from a growing middle class in emerging markets. Therefore Performance Materials will defend its position as the market and technology leader for liquid crystals and further expand it as far as possible.
Since the typical life cycle of LC mixtures is less than three years, innovation will remain the key success factor. The liquid crystals pipeline of Performance Materials is well-stocked with new technologies such as self-aligned vertical alignment (SA-VA), advanced fringe field switching (FFS), as well as projects with applications beyond displays.
Our OLED business, which is part of the Advanced Technologies business unit, posted strong, above-average growth in 2014. Performance Materials wants to further position itself in the OLED market and play a leading role in this market segment in the medium to long term. Lower production costs for OLED displays are a precondition for this. External partnerships will also be used in the future to ensure the required exchange of technology and expertise.
The acquisition of AZ Electronic Materials has sustainably strengthened the portfolio and the market position of Performance Materials. All integration measures were successfully implemented in 2014, adding a further premium business to the existing profitable businesses. AZ is a manufacturer of ultrapure, innovative specialty chemicals and materials for use in integrated circuits (semiconductors) and equipment, in flat-panel displays, and for photolithographic printing. Both Performance Materials and AZ have very similar and attractive business models based on innovation, customer proximity, high market share and profitability in the growth areas of displays, semiconductors, organic electronics, and lighting.
Within its Pigments & Functional Materials business unit, we continue to focus on high-quality brands that add value for customers as well as on market segments with growth potential. These include effect pigments, e.g. for automotive coatings, and functional materials, e.g. for laser marking.
Strategic financial and dividend policy
For reasons of sustainability, our company generally follows a conservative financial policy. Apart from a solid balance sheet with transparent and healthy structures, this policy is reflected by the selection of financing sources, liquidity management, key financial indicators, the dividend policy, and risk management. Our company generate high business free cash flow and its return on capital employed has been sustainably maintained at a high level.
In the context of the ongoing Group-wide efficiency program, in the past years cash was reserved with high priority to fund restructuring measures across all divisions and regions. In 2014, liquid funds were then used in particular for the acquisition of AZ Electronic Materials (Performance Materials).
One-time expenses in connection with restructuring measures as well as costs related to the integration of acquired businesses have also been assumed for 2015. With the planned acquisition of Sigma-Aldrich (Life Science) – subject to the successful closing of the transaction – in 2015 liquid funds would likewise again be used for inorganic growth. Accordingly, in the coming years, the repayment of the financial liabilities taken up in connection with this acquisition would be at the fore, along with the associated ongoing interest payments. In this case, initial one-time expenses for the integration could already be incurred then. However, smaller, so-called bolt-on acquisitions are still not ruled out. In addition, we will also invest in organic growth initiatives as part of its “Fit for 2018” transformation and growth program.
We are pursuing a sustainable dividend policy. Provided that the economic environment develops in a stable manner, the current dividend represents the minimum level for future dividend proposals. The dividend policy follows the business development and earnings increase of the coming years. However, dividend growth could deviate, e.g. within the scope of restructuring or in the event of significant global economic developments. We also aim for a target corridor of 20 – 25 % of EPS pre one-time items.

DISCLAIMER

Publication of Merck KGaA, Darmstadt, Germany.
In the United States and Canada the subsidiaries of Merck KGaA, Darmstadt, Germany operate under the umbrella brand EMD. To reflect such fact and to avoid any misconception of the reader of the publication certain logos, terms and business descriptions of the publication have been substituted or additional descriptions have been added. Publications on this homepage, therefore, slightly deviate from the otherwise identical version of the publications provided outside the United States and Canada.
 
 
  
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