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Healthcare

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Healthcare

Key figures1

Change
€ million 2018 2017 € million in %
Net sales 6,246 6,190 56 0.9%
Operating result (EBIT)2 731 1,337 – 605 – 45.3%
Margin (% of net sales)2 11.7% 21.6%
EBITDA2 1,492 2,028 – 536 – 26.4%
Margin (% of net sales)2 23.9% 32.8%
EBITDA pre2 1,556 1,773 – 217 – 12.2%
Margin (% of net sales)2 24.9% 28.6%
Business free cash flow2 1,025 1,314 – 289 – 22.0%
1
Previous year’s figures have been adjusted, see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” in the Notes to the Consolidated Financial Statements.
2
Not defined by International Financial Reporting Standards (IFRSs).

Development of net sales and results of ­operations

In 2018, the Healthcare business sector generated organic sales growth of 5.2%. After negative foreign exchange effects of –4.3%, net sales rose to € 6,246 million (2017: € 6,190 million). The foreign exchange effect resulted essentially from the development of the U.S. dollar, the Turkish lira, the Russian ruble and a number of Latin American currencies.

The net sales in the individual quarters as well as the respective organic growth rates in 2018 are presented in the following graph:

HEALTHCARE

Net sales and organic growth1 by quarter2, 3

€ million/organic growth in %

1 Not defined by International Financial Reporting Standards (IFRSs).
2 Quarterly breakdown unaudited.
3Previous year’s figures have been adjusted, see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” in the Notes to the Consolidated Financial Statements.

Net sales of the key product lines and products developed as follows in 2018:

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Healthcare

Net sales by major product lines/products1

€ million 2018 Share Organic
growth2
Exchange rate
effects
Total change 2017 Share
Oncology 944 15% 4.2% – 4.5% – 0.3% 946 15%
of which: Erbitux® 816 13% 0.4% – 4.8% – 4.3% 853 14%
of which: Bavencio® 69 1% > 100.0% – 10.8% > 100.0% 21 0%
Neurology & Immunology 1,529 24% – 1.1% – 4.2% – 5.4% 1,616 26%
of which: Rebif® 1,438 23% – 6.5% – 4.1% – 10.7% 1,611 26%
of which: Mavenclad® 90 1% > 100.0% – 33.3% > 100.0% 5 0%
Fertility 1,162 19% 11.1% – 5.0% 6.2% 1,094 18%
of which: Gonal-f® 708 11% 5.3% – 4.8% 0.5% 704 11%
General Medicine & Endocrinology 2,341 38% 5.8% – 4.4% 1.5% 2,308 37%
of which: Glucophage® 733 12% 15.1% – 4.4% 10.7% 662 11%
of which: Concor® 475 8% 11.2% – 4.5% 6.7% 444 7%
of which: Euthyrox® 363 6% 1.9% – 3.8% – 1.9% 370 6%
of which: Saizen® 234 4% – 3.1% – 6.3% – 9.4% 259 4%
Other 270 4% 226 4%
Healthcare 6,246 100% 5.2% – 4.3% 0.9% 6,190 100%
1
Previous year’s figures have been adjusted, see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” in the Notes to the Consolidated Financial Statements.
2
Not defined by International Financial Reporting Standards (IFRSs).

Sales of the drug Rebif®, which is used to treat relapsing forms of multiple sclerosis, saw an organic sales decline of – 6.5% in 2018. Including negative exchange rate effects of – 4.1%, sales of € 1,438 million were recorded (2017: € 1,611 million). Sales in the biggest market, North America, declined by – 5.0% in organic terms due to the persistently difficult competitive situation in the interferons market. A price increase made in February 2018 only partly offset this development. Consequently, sales in North America fell to € 920 million (2017: € 1,012 million). Competitive pressure in Europe was responsible for the organic sales decline of – 11.7%. Taking into account slightly negative exchange rate effects, sales came to € 395 million (2017: € 456 million). The sales declines in the other regions, which generated total Rebif® sales of € 123 million (2017: € 142 million), were primarily due to negative exchange rate developments.

Sales of the oncology drug Erbitux® were stable in organic terms, and after negative exchange rate effects of – 4.8%, sales decreased to € 816 million (2017: € 853 million). The negative organic development in Europe of – 0.8% was the result of the difficult competitive setting and some price reductions. Erbitux® sales in the European market amounted to € 437 million (2017: € 447 million). Net sales of the oncology drug in the Asia-Pacific region were stable in organic terms (– 0.3%). The drop in sales to € 255 million (2017: € 263 million) was attributable to negative exchange rate effects. Organic growth in Latin America was more than offset by very strong, negative foreign exchange rate effects, leading to a decline in sales to € 71 million (2017: € 87 million). In the Middle East and Africa, organic sales were at last year’s level at € 54 million (2017: € 56 million).

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Healthcare

Sales and organic growth1 of Rebif® and Erbitux® by region – 2018

Total Europe North America Asia-Pacific (APAC) Latin America Middle East and
Africa (MEA)
Rebif® € million 1,438 395 920 12 48 62
Organic growth1 in % – 6.5% – 11.7% – 5.0% – 10.2% – 3.5% 4.3%
 % of sales 100% 28% 64% 1% 3% 4%
Erbitux® € million 816 437 255 71 54
Organic growth1 in % 0.4% – 0.8% – 0.3% 8.7% 0.1%
 % of sales 100% 53% 31% 9% 7%
1
Not defined by International Financial Reporting Standards (IFRSs).

With the product Mavenclad®, a medicine for the oral short-course treatment of highly active relapsing multiple sclerosis, sales of € 90 million were generated in 2018 (2017: € 5 million). The product was approved in Europe in August 2017. Sales of Bavencio®, an immuno-oncology medicine, increased to € 69 million (2017: € 21 million).

Gonal-f®, the leading recombinant hormone used in the treatment of infertility, generated organic growth of 5.3%, to which the trend in the North America region, in particular, contributed with double-digit organic growth rates. Taking into account currency headwinds of –4.8%, global sales amounted to € 708 million (2017: € 704 million). The other products from the fertility portfolio also contributed to the increase in net sales with double-digit organic growth rates across all regions.

The General Medicine & Endocrinology franchise (including CardioMetabolic Care), which commercializes products to treat cardiovascular diseases, thyroid disorders, diabetes and growth disorders, among other things, generated organic growth of 5.8%. After negative foreign exchange effects of –4.4%, net sales rose to € 2,341 million (2017: € 2,308 million). Diabetes drug Glucophage®, the best-selling product in this area, made a significant contribution to this development with organic growth of 15.1%. While all regions reported positive growth, the Asia-Pacific region was the main driver of higher Glucophage® sales. A negative exchange rate effect of –4.4% reduced growth and resulted in total sales of € 733 million (2017: € 662 million). Double-digit organic growth rates (11.2%) were also achieved with beta-blocker Concor®. Despite adverse exchange rate effects (–4.5%), net sales of this medicine increased to € 475 million (2017: € 445 million). All regions contributed to this gratifying organic development, primarily Europe and Asia-Pacific. Euthyrox®, a medicine to treat thyroid disorders, recorded organic growth of 1.9%. However, this was not able to offset the exchange rate effect (– 3.8%). As a result, sales at € 363 million fell slightly short of the prior-year figure (2017: € 370 million). Saizen®, the top-selling product in the Endocrinology franchise, generated sales of € 234 million (2017: € 259 million).

Net sales of the Healthcare business sector by region in 2018 developed as follows:

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Healthcare

Net sales by region1

€ million 2018 Share Organic
growth2
Exchange rate
effects
Acquisitions/
divestments
Total change 2017 Share
Europe 2,203 35% 4.6% – 2.2% 2.4% 2,152 35%
North America 1,432 23% 0.1% – 4.2% – 4.1% 1,494 24%
Asia-Pacific (APAC) 1,501 24% 8.7% – 3.1% 5.6% 1,421 23%
Latin America 661 11% 10.9% – 14.5% – 3.7% 687 11%
Middle East and Africa (MEA) 448 7% 5.9% – 3.2% 2.8% 436 7%
Healthcare 6,246 100% 5.2% – 4.3% 0.9% 6,190 100%
1
Previous year’s figures have been adjusted, see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” in the Notes to the Consolidated Financial Statements.
2
Not defined by International Financial Reporting Standards (IFRSs).

The results of operations developed as follows:

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Healthcare

Results of operations1

Change
€ million 2018 in % 2017 in % € million in %
Net sales 6,246 100.0% 6,190 100.0% 56 0.9%
Cost of sales – 1,425 – 22.8% – 1,340 – 21.6% – 85 6.4%
Gross profit 4,820 77.2% 4,850 78.4% – 30 – 0.6%
 
Marketing and selling expenses – 2,339 – 37.4% – 2,373 – 38.3% 34 – 1.4%
Administration expenses – 301 – 4.8% – 271 – 4.4% – 30 11.0%
Research and development costs – 1,686 – 27.0% – 1,600 – 25.8% – 86 5.4%
Remaining operating expenses and income 237 3.8% 731 11.8% – 494 – 67.6%
Operating result (EBIT)2 731 11.7% 1,337 21.6% – 605 – 45.3%
 
Depreciation/amortization/impairment losses/reversals of impairment losses 761 12.2% 691 11.2% 69 10.0%
(of which: adjustments) (11) (– 51) (63) (> 100%)
EBITDA2 1,492 23.9% 2,028 32.8% – 536 – 26.4%
 
Restructuring expenses 12 17 – 5 – 31.9%
Integration expenses/IT expenses 18 27 – 9 – 34.5%
Gains (–)/losses (+) on the divestment of businesses 26 – 316 342 > 100%
Acquisition-related adjustments
Other adjustments 8 16 – 8 – 51.0%
EBITDA pre2 1,556 24.9% 1,773 28.6% – 217 – 12.2%
1
Previous year’s figures have been adjusted, see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” in the Notes to the Consolidated Financial Statements.
2
Not defined by International Financial Reporting Standards (IFRSs).

Gross profit of the Healthcare business sector was weighed down by foreign exchange rate effects in 2018. At € 4,820 million (2017: € 4,850 million) it remained flat, resulting in a gross margin of 77.2% (2017: 78.4%).

The decrease in marketing and selling expenses was due mainly to foreign exchange effects. Research and development costs reflected continued investments in the Biopharma development pipeline and amounted to € 1,686 million (2017: € 1,600 million). The decline in other operating expenses and income was due to multiple factors in both 2018 and 2017. Thus the 2017 figure included the gain on the divestment of the Biosimilars business amounting to € 319 million, which was adjusted when calculating EBITDA pre. The previous year’s figures also included milestone payments for the approval of Bavencio® (€ 124 million) as well as income from an agreement on a one-time payment for future license payments (€ 116 million). The year 2018 included receipt of a milestone payment of € 50 million from BioMarin Pharmaceutical Inc., United States, in connection with the sale of PALYNZIQ® (Peg-Pal) in 2016. Moreover, income from license agreements and from the transfer of rights had a positive effect on the fourth quarter of 2018. The following impairments and reversals of impairment losses were also included in remaining other expenses and income. In 2017, the reversals of impairment losses on the intangible asset for cladribine of € 17 million as a result of the marketing authorization of Mavenclad® had boosted other operating expenses. In 2018, a reduction in the fair value of contingent consideration from the sale of the Biosimilars business led to expenses of € – 27 million.

After eliminating depreciation, amortization, impairments and reversals of impairment losses as well as adjustments, EBITDA pre decreased by – 12.2% to € 1,556 million (2017: € 1,773 million) in 2018. Negative foreign exchange effects of – 10.7% had a material effect on the development of this key figure. The EBITDA pre margin relative to sales came to 24.9% (2017: 28.6%).

The development of EBITDA pre in the individual quarters in comparison with 2017 is presented in the following overview:

HEALTHCARE

EBITDA pre1 and change by quarter2, 3

€ million/change in %

1 Not defined by International Financial Reporting Standards (IFRSs).
2 Quarterly breakdown unaudited.
3Previous year’s figures have been adjusted, see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” in the Notes to the Consolidated Financial Statements.

Development of business free cash flow

In 2018, business free cash flow amounted to € 1,025 million (2017: € 1,314 million). The decline was primarily attributable to lower EBITDA pre and a rise in receivables.

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Healthcare

Business free cash flow1,2

Change
€ million 2018 2017 € million in %
EBITDA pre2 1,556 1,773 – 217 – 12.2%
Investments in property, plant and equipment, software as well as advance payments for intangible assets – 395 – 375 – 19 5.2%
Changes in inventories – 55 – 34 – 21 63.1%
Changes in trade accounts receivable as well as receivables from royalties and licenses – 81 – 49 – 32 64.6%
Business free cash flow2 1,025 1,314 – 289 – 22.0%
1
Previous year’s figures have been adjusted, see Note (49) ‟Effects from new accounting standards and other presentation and measurement changes” in the Notes to the Consolidated Financial Statements.
2
Not defined by International Financial Reporting Standards (IFRSs).

The development of business free cash flow items in the individual quarters in comparison with 2017 is presented in the following overview:

HEALTHCARE

Business free cash flow1 and change by quarter2, 3

€ million/change in %

1 Not defined by International Financial Reporting Standards (IFRSs).
2 Quarterly breakdown unaudited.
3Previous year’s figures have been adjusted, see Note  (49) ‟Effects from new accounting standards and other presentation and measurement changes” in the Notes to the Consolidated Financial Statements.