Fundamental Information about the Group
We are a vibrant science and technology company. Science is at the heart of everything we do. It drives the discoveries we make and the technologies we create. Our work makes a positive difference in millions of people’s lives every day.
In Healthcare, we discover unique ways to treat the most challenging diseases such as multiple sclerosis and cancer. Our Life Science experts empower scientists by developing tools and solutions that help deliver breakthroughs more quickly. And in Performance Materials, we develop science that sits inside technologies and changes the way we access and display information.
Everything we do is fueled by a belief in science and technology as a force for good. A belief that has driven our work since 1668 and will continue to inspire us to find more joyful and sustainable ways to live. We are curious minds dedicated to human progress.
We operate globally under our corporate brand. The only exceptions are Canada and the United States. In these countries, we operate as EMD Serono in the biopharmaceutical business, as MilliporeSigma in the life science business and as EMD Performance Materials in the high-tech materials business.
In November, we announced the intent to form a joint venture under the brand name Syntropy, a joint venture with technology and software company Palantir Technologies. Syntropy is expected to empower scientists and research centers with a collaborative technology platform to advance cancer research, help drive scientific discovery and improve human lives.
Apart from our three business sectors, our financial reporting presents the five regions Europe, North America, Asia-Pacific (APAC), Latin America as well as Middle East and Africa (MEA). As of December 31, 2018, we had 51,749 employees worldwide1, which compares with 52,941 on December 31, 2017.2
1The Consumer Health business was transferred to Procter & Gamble (P&G) on December 1, 2018, and was already classified as a discontinued operation according to IFRS 5 in April 2018. With the completion of the sale, around 3,300 employees joined P&G.
2 The Group also has employees at sites which are not fully consolidated subsidiaries. These figures refer to all people directly employed by the Group and therefore may deviate from figures in the financial section of this report.
Our Healthcare business sector comprises the two businesses Biopharma and Allergopharma. On December 1, our Consumer Health business tranferred to Procter & Gamble (P&G). Since 2015, Belén Garijo has been CEO of the Healthcare business sector and member of the Executive Board. In 2018, Healthcare generated 42% of Group sales and 37% of EBITDA pre (excluding Corporate and Other), making it the largest of our three business sectors. The regions Europe and North America generated 58% of Healthcare’s net sales in 2018. In recent years, we have steadily expanded our presence in growth markets. In 2018, Asia-Pacific and Latin America accounted for 35% of sales.
Our Biopharma business discovers, develops, manufactures and markets innovative pharmaceutical and biological prescription drugs to treat cancer, multiple sclerosis (MS), infertility, growth disorders as well as certain cardiovascular and metabolic diseases. Biopharma is the larger of our Healthcare businesses and operates in four franchises: Oncology, Neurology & Immunology, Fertility and General Medicine & Endocrinology. Our R&D pipeline positions us with a clear focus on becoming a global specialty innovator in oncology, immuno-oncology and immunology including MS.
2018 marked the 20th anniversary of the European Commission’s approval of our top-selling product Rebif® (interferon beta-1a), a disease-modifying drug used to treat relapsing forms of MS, acting in a way similar to that of interferon beta protein produced by the human body. Rebif®, which was approved in Europe in 1998 and in the United States in 2002, is registered in more than 90 countries worldwide. Rebif® has been proven to delay the progression of disability, reduce the frequency of relapses and reduce magnetic resonance imaging (MRI) lesion activity and area.
2018 also saw further launch progress of Mavenclad® (cladribine tablets), with approvals encompassing more than 40 countries. In addition, in July, the FDA accepted the resubmission of the New Drug Application (NDA) for cladribine tablets. The acceptance indicates that the FDA found the company’s resubmission sufficiently complete to permit a substantive review. We view Mavenclad® as a complementary new oral treatment option in our MS product portfolio. Our MS treatment Rebif® is and remains a well-established therapy.
In March, we announced positive Phase IIb data for the first Bruton’s tyrosine kinase (BTK) inhibitor to show clinical proof-of-concept in relapsing MS, namely evobrutinib, a highly specific, oral BTK inhibitor, and we further demonstrated our commitment to improving the lives of people with MS and other chronic progressive diseases via scientific advances and new data on our marketed and pipeline therapies (further details can be found under ‟Research & Development”).
Erbitux® (cetuximab) remains the second-best-selling drug in terms of revenue in the portfolio of our Biopharma business and is our flagship product in oncology. Treating more than 900,000 patients since authorization, the product is a standard of care for patients with epidermal growth factor receptor (EGFR)-expressing, RAS wild-type metastatic colorectal cancer (mCRC), as well as both recurrent and/or metastatic and locally advanced squamous cell carcinoma of the head and neck (SCCHN). We continue to invest in Erbitux® and are committed to making it available to those patients it will benefit most.
Together with Pfizer Inc., we are developing much-needed new treatment options for patients with hard-to-treat cancers. We have made key progress in this area, with regulatory approvals in 46 countries for our anti-PD-L1 antibody avelumab under the brand name Bavencio®. In 2018, approvals were granted in several countries including Australia and Brazil for Merkel cell carcinoma (MCC), Israel for both MCC and urothelial carcinoma (UC) and Canada for UC. Bavencio® was initially granted two approvals in 2017 by the U.S. Food and Drug Administration (FDA) for the treatment of adults and pediatric patients 12 years and older with metastatic MCC and previously treated patients with locally advanced or metastatic UC. These indications were approved under accelerated approval based on tumor response rate and duration of response. Continued approval for these indications may be contingent upon verification and description of clinical benefit in confirmatory trials. The prognosis for both patient groups is very poor, so for patients around the world this may represent a welcome new treatment option.
The Bavencio® approvals were based on data from our comprehensive clinical development program JAVELIN, which currently comprises at least 30 clinical programs, including several Phase III trials and over 9,000 patients evaluated across more than 15 different tumor types. In addition to MCC and UC, these cancers include gastric/gastro-esophageal junction, head and neck, non-small cell lung, ovarian and renal cell carcinoma.
We are continuing to explore all potential options and have entered into a number of strategic collaborations to evaluate avelumab in combination with a range of complementary oncology medicines (further details can be found under ‟Research & Development”). Key data from the JAVELIN program were presented at major medical congresses in 2018, including the European Society for Medical Oncology Congress (ESMO), where we shared promising new results from the Phase III JAVELIN Renal 101 study evaluating avelumab in combination with axitinib compared with sunitinib as initial therapy for patients with advanced renal cell carcinoma.
Earlier pipeline highlights included the presentation of new data for M7824 (TGF-β-trap/anti-PD-L1) in a range of tumors, adding to existing evidence for the potential of this bifunctional immunotherapy and supporting our plans to continue its exploration in advanced solid tumors and ongoing cohort expansions. Additionally, in August we initiated a trial to investigate M7824 compared with pembrolizumab as a first-line treatment in patients with PD-L1-expressing advanced non-small cell lung cancer (NSCLC). In December, the FDA granted orphan drug designation to M7824, its first regulatory designation, for the treatment of biliary tract cancer (further details can be found under ‟Research & Development”). Data shared for oral MET inhibitor tepotinib included positive results in NSCLC and advanced hepatocellular carcinoma (HCC). We are currently assessing the potential of investigating tepotinib in combination with novel therapies for the treatment of advanced HCC after the two HCC Phase II trials met their primary endpoints, with clinical activity and safety demonstrated both as first-line and second-line treatment. Both M7824 and tepotinib were discovered in-house at our company.
Being the global market leader in fertility drugs and treatments, with a unique and broad portfolio from therapeutics to technologies, our Fertility franchise is an important growth driver for our Biopharma business. Infertility represents an increasing challenge globally due to demographic changes and growing lifestyle trends like delayed childbearing. In this highly specialized market, the focus lies on quality, standardization and outcomes. With our portfolio we are confident of being well-equipped to face the challenges in this field, aiming to be the preferred fertility treatment partner of our customers and offering innovative solutions across therapeutics, lab technologies, connectivity and services.
The Pergoveris® Pen is the first product with a combination of recombinant follicle-stimulating hormone (FSH) and recombinant luteinizing hormone (LH) in a ready-to-use liquid version, eliminating the need for mixing. It thus provides an improved and convenient treatment option for women with severe deficiency of both FSH and LH, a group of patients that is difficult to treat. Launches will continue. The number of countries in which Pergoveris® Pen has launched reached 13 in 2018 and we will continue to provide patients with access to this innovative therapeutic.
In addition, we launched two new technologies at the annual meeting of the European Society of Human Reproduction and Embryology (ESHRE) in Barcelona. Our connectivity platform QBOX IVF streamlines the data transfer between lab instruments and electronic medical records, improving data management across the clinic. Geri® Assess 2.0 extends our innovative software portfolio, enabling automatic detection of key events in embryo and blastocyst development.
During the ESHRE meeting we also introduced our new online platform, www.fertility.com. It is the gateway to two online portals: one for healthcare professionals, offering the latest scientific information in the advancing field of fertility, and one supporting women, men and couples who are looking for information about fertility and/or undergoing fertility treatment.
Every day, more than 66 million patients around the world use our trusted general medicine and endocrinology (GM&E) medications. Today, Concor®, Euthyrox®, Glucophage® and Saizen® are highly valued brands and market leaders in many key markets around the world. As a result, in terms of sales GM&E is the largest business franchise of the Healthcare business sector, with strong growth in all major therapeutic areas of focus, contributing significantly to the overall profitability of Biopharma and Merck KGaA, Darmstadt, Germany. Although no longer patent-protected, the brand equity built over decades makes our flagship products cornerstones for the treatment of chronic cardiovascular, metabolic and endocrine diseases.
Concor®, containing bisoprolol, is the leading beta-blocker for chronic cardiovascular diseases such as hypertension, coronary artery disease and chronic heart failure. Euthyrox®, with the active ingredient levothyroxine, is the worldwide market leader with a market share above 40% for the treatment of hypothyroidism, a disease with high prevalence but still low diagnosis rates in most emerging markets. Glucophage®, containing the active ingredient metformin, is the drug of choice for first-line treatment of type 2 diabetes. During 2018, several health authorities worldwide continued to authorize Glucophage® for prediabetes when intensive lifestyle changes have failed. This indication for Glucophage® is now approved in 40 countries. Due to an increasing prevalence of diabetes we see great potential for this product.
We also help to raise awareness and education in the areas we operate in, such as thyroid diseases and diabetes. This is well demonstrated by our active role in International Thyroid Awareness Week and partnership with the International Diabetes Federation (IDF), which serves as a basis for implementation of education and communication activities emphasizing the importance of type 2 diabetes prevention.
Earlier in the year we announced our collaboration with U.S.-based Medisafe to help our cardiometabolic patients better manage medication intake and adhere to prescribed treatment regimens. In the countries of scope, our patients will have access to a customized version of Medisafe’s mobile platform that could combine reminders, motivation and support systems, targeted content, coupons and interventions in their local language.
Saizen® (somatropin) is our main endocrinology product and is indicated for the treatment of growth hormone deficiency in children and adults. Saizen® is delivered with the Easypod® electromechanical injection device, the only growth hormone injection device of its kind. Easypod® is able to wirelessly transfer data such as injection times, dates and doses to the web-based software system Easypod® connect, making it easier for healthcare practitioners and patients to ensure adherence and reach their treatment goals.
Our Consumer Health business tranferred to P&G on December 1. The cash purchase price was approximately € 3.4 billion. The transaction comprises the Consumer Health business in 44 countries with more than 900 products and two production facilities in Spittal (Austria) and Goa (India). Around 3,300 employees have transferred to P&G. The successful completion of the transaction marks a further step in our company’s strategic focus on innovation-driven businesses.
Our allergy business Allergopharma is one of the leading companies in the field of allergy immunotherapy (AIT) in Europe. For high-precision, effective allergy therapy, we offer comprehensive diagnosis solutions as a basis for individual treatment concepts. Our AIT products concentrate on causal treatment of type 1 allergies such as allergic rhinitis (for example, hay fever) and allergic asthma to meet patients’ needs. For AIT, strong evidence of efficacy and an acceptable safety profile have been well-documented in allergy-induced allergic rhino-conjunctivitis in numerous clinical trials. Furthermore, there is a potential positive effect on the long-term course of the allergic disease. AIT is designed to induce tolerance in the immune system of the allergy patient to the allergy-triggering allergen, thus potentially inducing an immune modification.
We offer high dosage, hypoallergenic, standardized preparations for allergen-specific immunotherapy for pollen and house dust mite allergies as well as a wide range of diagnostic allergy tests. Based on long-standing expertise, scientific excellence and entrepreneurial responsibility, we do our utmost to provide physicians with first-class therapy options and help people with allergies lead more fulfilled lives. Products of Allergopharma are available in 18 countries worldwide.
In Life Science, we are a leading, global supplier of tools, high-grade chemicals, and equipment for academic labs, biotech and biopharmaceutical manufacturers, as well as the industrial sector. We make scientific discovery easier and faster with technologies like CRISPR for gene-editing; and we provide drug manufacturers with process development expertise that make medicines safer and more effective for patients. We offer both testing kits and services to ensure that our food is safe to eat and water is clean to drink.
In Life Science, our purpose is to solve the toughest problems in life science by collaborating with the global scientific community. Since acquiring the chemical and technology company Sigma-Aldrich in 2015, we have put a strategy in place that we continue to execute today: complete the integration of Sigma-Aldrich; strengthen our core businesses by delivering a broad and relevant portfolio to our customers and establishing new pillars of growth in scientific areas like cell and gene therapy and continuous bioprocessing. As ranked by sales, our Life Science business sector has achieved a top-three ranking in the global life science industry.
Udit Batra was named CEO of the Life Science business sector in 2014 and was appointed to the Executive Board in 2016. In 2018, Life Science generated 42% of Group sales as well as 44% of EBITDA pre (excluding Corporate and Other).
Our portfolio comprises more than 300,000 products ranging from lab water systems to genome-editing tools, antibodies and cell lines, as well as end-to-end bioprocessing systems to support the manufacturing needs of both emerging biotech and large pharma companies. For example, our Life Science business sector has built the expertise to further develop our BioReliance® End-to-End Solutions, a service offering for process development and manufacturing for emerging biotechs. Another example is BrightLab™, our digital ecosystem for complete lab management.
Our e-commerce platform, sigmaaldrich.com, continues to grow and connect customers in nearly every country with the products needed to advance their research, development and production efforts. In 2018, we implemented initiatives to optimize how our customers search and find our products, engage with our content and make purchasing decisions. With our teams' technical expertise and dedication to customer service, we continued to experience growth in both user sessions and revenue. This was recognized with three external awards.
In the first quarter of 2018, we made the first of several investment announcements. In February, we invested €40 million in Asia, which included an integrated cell culture facility in Songdo (Incheon, Korea); a new manufacturing and distribution center near Mumbai, India; and a single-use manufacturing facility in Wuxi, China.
The Songdo center includes cell culture media facilities (imMEDIAte Advantage® Custom Media) and a logistics infrastructure to help meet the rapid growth in the biopharmaceutical industry in Songdo (Incheon, Korea). The new center in Mumbai, which is expected to be completed in 2019, is being built to ensure that our customers have ready access to the products needed to develop new therapies and biosimilars to accelerate access to health.
In June, we announced expansion plans to our operations in Gillingham, United Kingdom. The distribution center, which will grow by 5,250 square meters, will supply the pharmaceutical industry, biotechnology companies, research institutes and academic centers with biochemical and chemical reagents, laboratory supplies and testing services. The € 9 million investment will boost distribution capabilities for the business. Anticipated to open in early 2019, the updated facility will serve as the primary distribution center for the United Kingdom.
In September, we established our first Mobius® single-use manufacturing facility in China to support the development of the biopharma industry in the region. This facility, which is expected to be operational by the first quarter of 2019, will provide flexible and customized single-use solutions to support local customers in accelerating drug development and manufacturing.
In the second half of 2018, we opened a € 13 million (SG $ 20 million), 3,800-square-meter laboratory in Singapore, the only lab of its kind in Singapore and outside of the United States and the United Kingdom. The lab will focus on biologics testing, which is a major step in the drug development process.
In October, we also opened a new, 1,000-square-meter M Lab™ Collaboration Center in São Paulo, Brazil, to serve the Latin America region. The lab, which is one of nine such centers around the world, includes a non-good manufacturing practice (non-GMP) pilot and bench scale labs for customers. This allows customers to engage in process development support, troubleshooting, demonstrations and hands-on training to explore new ways to increase productivity, improve processes and mitigate risks.
In addition to new facilities, in 2018 we also announced a new platform for our biopharmaceutical customers who manufacture monoclonal antibodies. In the third quarter, we launched our BioContinuum™ Platform, which addresses intensified bioprocessing and continuous manufacturing. Continuous bioprocessing integrates the typical batch-based, separate manufacturing steps into a connected process, enabling a continuous flow from the addition of raw materials through product harvest, purification and testing. Pilot studies suggest that conversion to such a manufacturing method may reduce manufacturing costs by up to 50%.
A key goal for our Life Science business units is to help our customers that manufacture drugs, from small to large innovator companies, bring life-enhancing medicines and therapies to market – and to patients – faster. To facilitate reaching this target, we opened our first BioReliance® End-to-End Biodevelopment Center in North America in June 2018. This center supplies drug manufacturers with complete solutions for the development of cell lines, upstream processes and downstream processes as well as production not subject to good manufacturing practices, or non-GMP production. The facility is designed to help customers with their biopharmaceutical manufacturing processes and accelerate clinical development from DNA to market.
Today, 60% of drugs in the pipeline are being developed by biotech start-ups focused on innovative therapies, including those intended to treat niche diseases with small patient populations. These companies are the focus of our global health commitment to support them in bringing their drugs to market through our grant programs. Grants provide these companies with free products and services of our company to help accelerate market entry of new therapies. Through our Advance Biotech Grant Program, every six months, three recipients around the globe are awarded a total of € 200,000 in services and products to address their process development challenges.
In February, we announced a two-year research collaborative with Washington University in St. Louis, Missouri, United States, that includes the use of our CRISPR genome-editing technology. The goal of the research is to determine the differences between gut bacterial communities in healthy and malnourished children, and to identify what features of healthy intestinal bacteria are critical for supporting healthy growth.
Further to these grants, in the second quarter of 2018, we announced three new partnerships with leading academic institutions. The first is a partnership with Oxford University’s Jenner Institute, in the United Kingdom, which seeks to develop more robust and scalable vaccine manufacturing processes. A second collaboration, in addition to the aforementioned grant, is with Washington University in St. Louis, Missouri, United States, to optimize nutritional supplements to restore a healthy gut microbial community (microbiome). The third is a partnership with Tongji University in Shanghai, China, for our CRISPR Core Partnership Program to provide the university with exclusive access to our genome-editing technology and comprehensive technical support.
Related to our advancements in CRISPR, in December we announced a strategic alliance in the CRISPR/Cas9 rodent model market with France-based biotechnology company genOway. Through an exclusive worldwide license of our foundational CRISPR integration patents , genOway will develop new models and solutions allowing non-profit and for-profit scientists to use CRISPR/Cas9 technology. Under the agreement, genOway will also develop a network of sublicensees in both the model creation and distribution businesses and preclinical services for all potential applications worldwide, with a strong focus on the United States, Asia and Europe.
In addition to awarding grants to academic institutions, our businesses also extend to the wider community through SPARK, our global volunteer program. In 2018, through this initiative, nearly 1,700 employees volunteered nearly 9,000 hours to engage 66,500 students around the world in science learning. For the second year, our Curiosity CubeTM, mobile science lab toured North America, traveling 30,000 kilometers and engaging approximately 36,000 students at schools and city centers in 24 communities.
In 2018, we served as the exclusive sponsor of TeleScience, a new online platform for Seeding Labs, an organization that provides scientists in developing countries with lab equipment, training and opportunities to collaborate with experts in their field. To date, our partnership with Seeding Labs has enabled the organization to equip 65 universities in 34 developing countries with 77 shipments (containing nearly 200 tons) of equipment, providing access to the global scientific community and helping to accelerate scientific research.
In October, we announced an agreement to sell our Amnis® Flow Cytometry and Guava® Technologies businesses to Luminex Corporation for € 63 million. The transaction, which closed in January 2019, transferred our flow cytometry platforms Amnis and Guava as well as the associated reagents under those brands. This included a portfolio of leading technologies serving the research space.
We will continue to actively manage our comprehensive portfolio by tapping into innovation and placing it in the best hands to continuously drive value for customers.
Our Performance Materials business sector comprises our specialty chemicals business and supplies solutions for displays, computer chips and surfaces of all kinds. Effective April 1, 2018, Performance Materials comprises three business units: Display Solutions, Semiconductor Solutions and Surface Solutions. If we compare Performance Materials with a smartphone, Display Solutions represents the user interface, Semiconductor Solutions the intelligence and Surface Solutions the aesthetics.
On July 3, the Performance Materials business sector presented a strategy update explaining how, after 2019, it aims to achieve average annual sales growth of around 2% to 3% with an expected sustainable EBITDA pre margin of around 30%. We expect to be able to more than offset the decline in our liquid crystals business for displays with growth in the other businesses after 2019.
One pillar of the ‟Bright Future” transformation program is the realignment of Research and Development (R&D) as presented at the Capital Markets Day on October 16. In the wake of this realignment, the business sector is seeking to align its resources more purposefully to the requirements of end customers. On top of this, decisions on the evaluation of projects and the allocation of resources are to be made centrally, and the business sector aims to push ahead with integrated and interdisciplinary R&D.
We are currently undergoing a transformation in the Performance Materials business sector with a view to adjusting to new market realities and customer requirements. We are building the foundations for the future. It is our strategic goal to return to sustainable profitable growth, to ensure an attractive margin and to remain competitive as Performance Materials. In order to achieve this, we have to optimize our cost base and to adopt our R&D ratio, which is far beyond industry benchmark. Our goal is a ratio of R&D investments compared to Sales of around 8%. This is at the upper end of what comparable companies invest in Research and Development. We are adjusting our cost structure in the Display Solutions and Integrated Supply Chain business units as well as in Research & Development, in particular.
Performance Materials accounted for 16% of Group sales in 2018 and its share of EBITDA pre (excluding Corporate and Other) was 19%. The EBITDA pre margin amounted to 32.7% of net sales.
Our Display Solutions business unit comprises the liquid crystals, OLED (organic light-emitting diodes), photoresists and liquid crystal windows businesses. Even though competition has intensified, we defended our position as the global market and technology leader in the display materials business in 2018. Modern, energy-efficient technologies such as UB-FFS (ultra-brightness fringe-field-switching) have further established themselves on the market. We have secured projects in the area of large-surface displays and for high-resolution mobile devices for our product offerings of the newly launched XtraBright™ brand.
The first commercial lighthouse projects in the architecture segment are running with our liquid crystal window modules. In October, we launched our new product brand, eyrise™. Its launch follows the opening of our production plant for liquid crystal window modules in Veldhoven, the Netherlands, at the end of 2017. Our business with photoresists for displays continues to consolidate thanks to proven technical success in high-performance product lines, in particular. This growth is supported by a strong position in new display production lines on the growing Chinese market. As a result of continuous improvements as well as substantial increases in the current lifetime and efficiency of the OLED materials in our portfolios, these materials have been selected for a large number of new devices being launched on the market.
Semiconductor Solutions, the second-largest business unit in Performance Materials, supplies products for integrated circuits, microelectronic systems, for antireflection coatings and for the miniaturization of transistor structures. Deposition materials and conductive pastes for semiconductor packaging round off the portfolio. We are continuously looking for new materials for metallization processes with low resistance and various dielectric characteristics for faster or better processors, servers and data storage density. Our business with dielectric materials for spin-on procedures is growing steadily. Furthermore, we are reporting rising demand for krypton fluoride (KrF) thick film resists, an important material in the production of 3D NAND staircase structures.
Materials for Directed Self Assembly (DSA) provide cost-effective patterning solutions which enable further chip scaling. DSA combines bottom-up with conventional top-down patterning. DSA uses a variety of different materials, in particular so-called block copolymers (BCP) that consist of two continuous, linked strands of different polymers. These BCPs have the ability to arrange themselves in even shapes along the conductive structure under certain conditions. They form the basis for the extremely fine transistors and printed circuit paths for the computer chips of the future. Our technological competence in combination with a strengthened supply chain have contributed to this growth.
In the Surface Solutions business unit our goal is to help customers with our materials and solutions to make innovative surfaces of all kinds more beautiful, more resistant or even more intelligent. Our pearlescent pigments enable striking automotive coatings, fascinating cosmetics, extraordinary packaging, innovative product design and even unique food creations. With our functional solutions we serve a large number of innovative applications, from dirt-repellent and easy-care surfaces to laser markings of plastic parts and cables.
On October 26, the Surface Solutions business unit announced that it would align itself even more closely with the needs of its markets. The future business areas of Surface Solutions will be automotive coatings, cosmetic solutions and industrial solutions.