Merck shares under pressure: Merck earns less despite the corona boom

The fight against the corona pandemic is keeping the pharmaceutical and specialty chemicals company Merck KGaA going.

In the laboratory sector, the boom continued in the third quarter thanks to demand from the pharmaceutical industry, and the semiconductor materials business also flourished. The group also recorded growth with pharmaceuticals. Due to a special income in the previous year, the operating result and the bottom line fell, as Merck announced on Thursday in Darmstadt.

Merck CEO Belen Garijo spoke of an excellent development in all three corporate divisions. For this reason, Merck recently raised its annual targets once again along with key data. In its new goals, management is now also for the first time taking into account the business of booster vaccinations (“booster”), said Garijo on a conference call.

Management assumes that the pandemic will also provide the group with tailwind in 2022. In the business with products and services for the manufacture of pharmaceuticals, the Group now expects an even greater contribution from the Covid-19 business than before in 2022. The positive impact of the pandemic should then decrease year after year, said Garijo.

In the meantime, Merck is also feeling the effects of the global supply chain problems. But Garijo sees no cause for concern. Merck cannot deliver all orders, but is well positioned and has no raw material shortages. The group is currently accelerating its processes “to get the situation back on track”.

The quarterly figures were well received by experts: The final report made it clear that the forecast increase was not only due to Covid, but also to the good life science business, wrote analyst Richard Vosser of the US bank JPMorgan in an initial reaction.

In the last quarter of the year, sales at Merck rose – as already known – compared to the previous year by around twelve percent to 4.97 billion euros. Organically, i.e. excluding acquisitions and sales and adjusted for exchange rate effects, the increase was almost eleven percent.

In the laboratory division, Merck grew nominally by almost 18 percent. Business with products and services for the manufacture of pharmaceuticals recorded an increase of almost 28 percent. The area has been booming in the pandemic for some time. According to Garijo, Merck now supplies around 80 vaccine developers, including the mRNA manufacturer Biontech (BioNTech (ADRs)). The growth is now driven in equal parts by Covid-19 and growth in the core business, said the group leader. Business with scientific and commercial laboratories continued to recover. During the Corona crisis, business had temporarily collapsed in 2020 due to the closure of many facilities.

Strong demand for cancer drugs such as Bavencio and the Mavenclad tablet for multiple sclerosis (MS) drove growth in the pharmaceutical business. Fertility drugs were also in demand. At around five percent, the growth in the entire division was the lowest in comparison. For example, as expected, Merck recorded declining sales of its aging MS drug Rebif. However, there were also losses in the case of drugs, for example for cardiovascular diseases and metabolic disorders. The price regulation in China that has been in force since 2020 had a negative effect here and led to a decline in sales of around ten percent for the diabetes drug Glucophage, it said.

Meanwhile, good business with the semiconductor industry pushes the group further. The entire sales of the electronics division increased by around twelve percent in the past quarter. Here the group benefits from the supply bottlenecks in semiconductors, especially in the automotive industry, chips are scarce. Chip companies are therefore expanding their production, and the demand for materials is correspondingly high. The billion-dollar takeover of US semiconductor supplier Versum 2019 will now benefit Merck.

In contrast, the liquid crystals business, for example for smartphones and displays, continues to suffer from strong Asian competition. The sale of color pigments, on the other hand, is reviving – here, in the pandemic, demand from cosmetics and the automotive industry in particular collapsed.

Despite the increase in sales – as already known – the operating result adjusted for special effects (adjusted Ebitda) fell from July to September by almost nine percent compared to the previous year to 1.55 billion euros. However, after the successful end of a patent dispute with US rival Biogen, the group had released multi-million dollar provisions in the previous year. That made for an extraordinary boost. After taxes, the profit fell by five percent to 764 million euros.

The targets for 2021, which were only raised last week, provide for an increase in sales to between 19.30 and 19.85 billion euros (previous year: 17.5). Adjusted operating profit is also expected to rise and grow from EUR 5.2 billion in the previous year to EUR 6.0 to 6.3 billion. The Spaniard continues to see the group as ideally positioned for the recently presented medium-term goals, which should bring Merck a jump in sales to 25 billion euros by 2025 through organic growth, but also through acquisitions. “We can shift up a gear,” said the group leader.

For the Merck share via XETRA it is temporarily 1.69 percent down to 203.00 euros.

/ tav / mis



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