MERCK KGAA, DARMSTADT, GERMANY – EVERCORE ISI HEALTHCONX CONFERENCE
Udit Batra, CEO Life Science
Boston – November 29, 2018 Disclaimer Publication of Merck KGaA, Darmstadt, Germany. In the United States and Canada the group of companies affiliated with Merck KGaA, Darmstadt, Germany operates under individual business names (EMD Serono, Millipore Sigma, EMD Performance Materials). To reflect such fact and to avoid any misconceptions of the reader of the publication certain logos, terms and business descriptions of the publication have been substituted or additional descriptions have been added. This version of the publication, therefore, slightly deviates from the otherwise identical version of the publication provided outside the United States and Canada.
2 Disclaimer
Cautionary Note Regarding Forward-Looking Statements and financial indicators This communication may include “forward-looking statements.” Statements that include words such as “anticipate,” “expect,” “should,” “would,” “intend,” “plan,” “project,” “seek,” “believe,” “will,” and other words of similar meaning in connection with future events or future operating or financial performance are often used to identify forward-looking statements. All statements in this communication, other than those relating to historical information or current conditions, are forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond control of Merck KGaA, Darmstadt, Germany, which could cause actual results to differ materially from such statements.
Risks and uncertainties include, but are not limited to: the risks of more restrictive regulatory requirements regarding drug pricing, reimbursement and approval; the risk of stricter regulations for the manufacture, testing and marketing of products; the risk of destabilization of political systems and the establishment of trade barriers; the risk of a changing marketing environment for multiple sclerosis products in the European Union; the risk of greater competitive pressure due to biosimilars; the risks of research and development; the risks of discontinuing development projects and regulatory approval of developed medicines; the risk of a temporary ban on products/production facilities or of non-registration of products due to non-compliance with quality standards; the risk of an import ban on products to the United States due to an FDA warning letter; the risks of dependency on suppliers; risks due to product-related crime and espionage; risks in relation to the use of financial instruments; liquidity risks; counterparty risks; market risks; risks of impairment on balance sheet items; risks from pension obligations; risks from product-related and patent law disputes; risks from antitrust law proceedings; risks from drug pricing by the divested Generics Group; risks in human resources; risks from e-crime and cyber attacks; risks due to failure of business-critical information technology applications or to failure of data center capacity; environmental and safety risks; unanticipated contract or regulatory issues; a potential downgrade in the rating of the indebtedness of Merck KGaA, Darmstadt, Germany; downward pressure on the common stock price of Merck KGaA, Darmstadt, Germany and its impact on goodwill impairment evaluations, as well as the impact of future regulatory or legislative actions.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere, including the Report on Risks and Opportunities Section of the most recent annual report and quarterly report of Merck KGaA, Darmstadt, Germany. Any forward-looking statements made in this communication are qualified in their entirety by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. Except to the extent required by applicable law, we undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
This presentation contains certain financial indicators such as EBITDA pre exceptionals, net financial debt and earnings per share pre exceptionals, which are not defined by International Financial Reporting Standards (IFRS). These financial indicators should not be taken into account in order to assess the performance of Merck KGaA, Darmstadt, Germany in isolation or used as an alternative to the financial indicators presented in the consolidated financial statements and determined in accordance with IFRS. The figures presented in this statement have been rounded. This may lead to individual values not adding up to the totals presented.
3 Agenda
Business overview
Transforming the company
Healthcare – Funding for success
Life Science – Focusing on profitable growth
Performance Materials – Maintaining leadership and innovation
Executive summary and guidance
4 BUSINESS OVERVIEW Group A platform of three high-tech & science businesses to compete in attractive markets
Performance Healthcare Life Science Materials
Leading in specialty Leading life science Leading Company in pharma markets company high-tech solutions
• Biologics and small molecules • Tools and services for biotech • High-tech solutions and materials • Research focus: Oncology, research & production for electronics Immunology & Immuno-Oncology • Tools and laboratory supply for the • Broad portfolio of decorative academic research and industrial and functional solutions testing
6 Group Strong businesses with attractive margins
% of sales Margin1 % of EBITDA pre
46% 27.9% 41%
FY 2017 FY 2017 Sales: EBITDA pre2: €15,327 m €4,414 m 38% 38% 30.4%
21% 16% 40.1%
Healthcare Life Science Performance Materials
1EBITDA pre margin in % of net sales; 2Including Corporate/Others (-€301 m) 7 TRANSFORMING THE COMPANY Group Strategic roadmap 2016-2022
2012-2015 2016-2018 2019-2022
Turnaround Fully leverage Efficiency First pipeline in Healthcare pipeline potential program launches
Portfolio Above- optimization 3 strong market growth in LS and PM pillars Portfolio in Life Science Sigma management integration
Leadership Digital in Performance business models Materials New applications beyond displays
9 Group We have added scale and strengthened the attractiveness of our portfolio
2007: ~€7 bn sales Transformation volume 2017: ~€15 bn sales
Consumer Health1
merged + Healthcare Ethicals4 Serono
3 Generics - ~€10 bn ~€30 bn + Life Science Millipore & Life Science Solutions2 Sigma-Aldrich merged Laboratory Business
Divestments Acquisitions Pigments + Performance merged Liquid Crystals - divested + acquired Materials AZ
1Consumer Health divestment announced on April 19th 2018, closing expected at the end of Q4 2018; 2Excluding “Crop Bioscience”, which was divested; 3Profroma 10 divestment volume includes cash proceeds for Consumer Health 4Excluding “Theramex”, which was divested; Group Profitability improved fundamentally
Acquisition of Sigma-Aldrich Acquisition of AZ 1 €m Electronic Materials Margins Acquisition of Millipore 15,024 15,327 14 000 12,845 35% Acquisition of Serono
12 000 Divestment of Generics 11,363 10,756 10,735 9,922 30% 10 000 8,951 30% 30% 29% 7,202 28% 28% 8 000 7,402 28% 6,775 28% 27% 26% 25% 6 000
4 000 22% 20% 20% 2 000
0 15% 2 2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net sales [€m] EBITDA pre margin [%]
1Included since 2 May 2014; 22007 and 2014 EBITDA pre margin adjusted for comparability
11 Group Clear set of priority goals to be realized by 2018
Performance Healthcare Life Science Materials
~ ~ ~41% 38% 21% EBITDA EBITDA EBITDA pre* pre* pre*
Maximize growth of existing Focus on seamless integration Drive innovation and franchises and deliver cost synergies technology leadership across Deliver pipeline: Leverage strategic capabilities all businesses one product launch or for value creation Innovate in applications also indication p.a. from 2017 beyond displays
▪ Deleverage to <2x net debt / EBITDA pre in 2018 MeRck KGaA, Darmstadt, ▪ No large acquisitions (>€500 m) until end of 2018 (unless financed by divestments) Germany ▪ Dividend policy that ensures a sustainable and resilient development
*based on FY 2017 reported EBITDA pre, excluding Corporate & Other 12 Group Regular portfolio review and optimization remains key
Supporting mid-term strategy Acquisitions and divestments are and strengthening core business part of our history Growing in attractive markets Licensing transactions remain on Proven track record: our agenda strong ability to win All prior transactions earned their Clear Compelling financials: required cost of capital criteria IRR > WACC EPS pre accretive Regular portfolio review DNA and Maintain investment-grade and active capital credit rating allocation will continue track record Disciplined approach to portfolio management will persist
13 HEALTHCARE Funding for success Healthcare Healthcare is set to deliver on promising pipeline candidates
> €2 bn Potential pipeline Focus on sales the pipeline > €120 m1 Pipeline products 2018… …2022
Core business Deliver organic 2013 2022E growth
1Guidance 2018 15 Healthcare Ambition to keep core business sales organically stable until 2022
Healthcare core business net sales until 2022
• Maintaining solid track record of 5 years of organic Rebif® patient retention Decline in line • Integration into joint franchise growth, w/o CH with interferon market strategy with Mavenclad®
• Driving emerging markets growth Erbitux® • Mitigate price and competitive Low single-digit decline pressure in EU by clear Erbitux® franchise positioning
• Drug demand driven by emerging Fertility markets growth and demographics Mid single-digit growth Base • Differentiation due to coverage of business the entire ART portfolio1
2 General medicine Mid to high single-digit • Emerging markets growth growth • Repatriation measures
2013 2017 2022E
1ART: Assisted Reproductive Technology; 2includes General Medicine, CardioMetabolic Care (CMC), Endocrinology & Allergopharma 16 Healthcare ® ® Mavenclad and Bavencio are growing well and support €2 bn pipeline target
Recently launched products continue to … and support €2 bn pipeline sales gain market traction in 2018 ... ambition for 2022
1 90% 3 72% > €2 bn
MCC 60% : : Bavencio: additional 30% indications
0% Bavencio RCC 1L
Bavencio To be submitted to FDA
Jan
Oct
Jun
Apr
Feb
Mar
Dec
Nov May Bavencio Competitor 1 Competitor 2
Mavenclad US
100% Submitted to FDA 2
Mavenclad EU : MS : 4 > €120 m Bavencio approved indications (MCC, mUC) 0,1% 10,4% 13,6% 15,3% 0% 7,5% 2018 2022
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018* Mavenclad MAVENCLAD Orals (excluding MAVENCLAD) mAbs
1 2 US: naïve/1L Patient share of IO class in 2018 - Data source: IMS claims data; Germany: share of HE dynamic patients (RMS only) - Data source: actual patients per IMS and shares estimated from IPSOS MS Monitor; Dynamic markets per internal company estimates; 3Indication, risk adjusted; composition is an illustration and may change subject to data read-outs and registration outcomes; 4Guidance 2018 17 Recent & upcoming catalysts An eventful Q4 and a year of continued pipeline development ahead1
Oncology Q4 2018 H1 2019 Q3 2019 Immuno-Oncology
Evobrutinib Evobrutinib Evobrutinib Neurology
Ph IIb primary data presentation & Ph IIb 48 week data presentation & Ph II Rheumatoid Arthritis Immunology secondary endpoint read-out (MS) decision on PhIII (MS) trial design data read-out
Completed Tepotinib Cladribine tablets Tepotinib
Ph II data presentation Expected FDA decision Expected presentation of advanced (NSCLC 2L / HCC 1L/2L) interim results (NSCLC, MET Exon 14)
Avelumab M7824 (TGF-ß trap)
Ph III PFS IA data read-out Initiation of 2L BTC trial & (RCC 1L, FDA submission planned) decision on further NSCLC trial settings
Avelumab
Ph III data read-out (Ovarian 2L, plat. res/ref)
1Note: All timelines are event-driven and may be subject to change; Acronyms: NSCLC – Non small cell lung cancer | MS – Multiple Sclerosis | RCC – Renal Cell Carcinoma | HCC – Hepatocellular Carcinoma l plat. res/ref – platinum resistant/refractory | FDA – U.S. Food and Drug Administration | IA – Interim Analysis 18 LIFE SCIENCE Focus on profitable growth Life Science Serving customers across the highly attractive life science industry
RESEARCH PROCESS APPLIED ~€45-50 bn ~€50 bn ~€55 bn Low single-digit growth High single-digit growth Mid single-digit growth
Academic and government institutions Pharmaceutical companies Diagnostic manufacturers Biopharma R&D Small biotech Clinical testing labs Industry R&D Contract manufacturing organizations Food & Beverage manufacturers
~€150 bn* market growing at ~4% CAGR
Growth in volume of experiments Drug volume growth Volume growth from Mild growth in academic funding from biologics Population growth Investment in industry R&D from emerging modalities Rise in quality standards Continued shift to single-use Increased testing needs
*Source: Merck KGaA, Darmstadt, Germany estimate 2018 20 Life Science Business is on track to deliver above-market organic growth
Life Science Market1 Long-term growth drivers 2 Research activity: >3,000 projects in research pipelines , rising Research Solutions number of experiments and newly emerging therapies/technologies Low single digit growth backs healthy growth in biotech and CROs3 Public and private funding: availability, access and predictability Academia & Government drive demand from academia and emerging biotech customers Pharma & Biopharma Regulation: rising requirements foster long-term customer partnerships Emerging Biotech Merck KGaA, 35% 4 Darmstadt, Germany 5 Biologics: mAbs production growing by ~11-15% p.a. for 2018-2024 driven by new molecules and biosimilars FY 2017 38% Process Solutions €5.9 bn High single digit growth Diversification: contribution by top 10 molecules will decline to ~20% until 2024 from 60% today6 Noval modalities: innovation in complex-to-deliver therapies, 27% BioProcessing Pharma e.g. gene and cell therapy, will drive demand for single-use, Services end-to-end and new technology solutions
Market1 Regulation: testing volumes overall are rising globally rise in quality standards and increased demand for testing across customer segments Applied Solutions Population and economic growth: demand for access to more Mid single digit growth sophisticated products and services rises, e.g. in emerging markets Food&beverage Speed: need for fast testing results raises requirements for Applied Environmental Diagnostics customers, esp. in clinical testing and food & beverage testing
1Source: Merck KGaA, Darmstadt, Germany Factbook; 2Source: PhRMA; 3CRO = Contract Research Organization; 4Indicative only; 5mAbs = monoclonal antibodies; 6Source: EvaluatePharma September 2018 21 Life Science Market leading growth and profitability maintained during integration
Consistent above-market growth Key industry player Superior profitability Organic sales growth vs market* [% YoY] Life Science net sales [€m] EBITDA pre margin [%]
29 2016 25 2016 6,3 5,658 22
30 2017 25 24 2017 5,3 5,882 30 9M 2018 25 24
9M 2018 8,8 4,557 Merck KGaA, Darmstadt, Germany LS Peer 1 Life Science organic growth Peer 2 Market growth*
Ambition to grow above Secure leading market Maintaining industry- market through to 2022 position leading margin
*Based on integrated life science peers’ performance, analyst reports and Laboratory Products Association report 22 Life Science Portfolio and focus are key drivers of above-market growth
Life Science net sales organic CAGR 2015-2017*
• We grow within the relevant ~ 6% market segments Out- • Broad range of differentiated Performance products and services + 50-100 bps • E-commerce platform
• We focus on higher-growth Portfolio segments of the market + 50-100 bps advantage • E.g. bioprocessing, lab water, diagnostics offerings
Life science • The life science industry grows rapidly and develops ~ 4% market dynamically
*Indication 23 Life Science Innovation underpins Life Science‘s position as growth engine for us
Products launched after 2013 Categories of innovation Industry trends % of total net sales
Sustain x2* Increasing relevance Customer 1 and competitiveness requirements, scientific standards and therapies are Incremental evolving continuously Expanding high-value Merck KGaA, 2 products offering Darmstdt, Germany’s strong and innovative portfolio ensures Breakthrough well-balanced Creating transfor- strategic growth 2013 2014 2015 2016 2017 2022E 3 mational solutions
Innovation pipeline is key to differentiate in the market in order to sustain Life Science’s above-market growth trajectory
*Indication 24 Life Science Integration of Sigma and synergy generation progressing well
On track to deliver planned synergies of ~ €280 m until 2018
Cost synergies On track Topline synergies ✓ ~260 On track ✓ ~170 ~105 ✓ ~20 ✓ ~15 ~5
2015 2016 2017 2018 2015 2016 2017 2018
Net cost synergies Accelerated cost synergies Top-line synergies
Network consolidation and operational Continued integration of sigmaaldrich.com transformation ongoing ~80% of relevant products in U.S. and EU are available online Consolidated 10 manufacturing and distribution sites >1/3 of Merck KGaA, Darmstadt, Germany eCommerce orders now contain products from both legacy companies Announced consolidation of 5 further sites Complete offering in Process Solutions Combination of customer service centers and offshoring of transactional tasks
25 PERFORMANCE MATERIALS Maintaining leadership and innovation Performance Materials A leader in the electronic materials market
1 ~€1,250 bn ~€380 bn Electronic materials competitor landscape Electronics market Semiconductor market CAGR 18-25: ~4% CAGR 18-25: ~5% ~€38 bn Materials market C4
CAGR 18-25: ~3% C10 C12
C7 C14 C13 C6 C2
C1 C11
~€125 bn Display market C8 C3 CAGR 18-25: ~-1% ~€48 bn C9 Materials market CAGR 18-25: ~-1% C5
1Bubble size in competitive landscape illustrates share of semiconductor Illustration of the electronics market and thereof its selected sub markets and display material sales of indicated competitors (C1 – C14)
1Source: Linx 2018, Research & Markets 2017, Semi 2015, McClean/IC Insights 2018, IC insights, Gartner 2017, Prismark 2018, FujiChimera, IHS, Market size as of 2017 27 Performance Materials: New structure combines LC with OLED, serving same customer group
Business allocation within Performance Materials % sales Products
Dielectrics, colloidal silica, lithography materials, yield enhancers, edge-bead ~ Integrated Circuit Semiconductor 20-25% removers Materials Solutions Polyimide raw materials and printing materials
Liquid crystals (LC) and photoresists for TVs, smartphones and tablet computers Display Materials Display ~50-55% Other display and non-display applications Solutions (e.g. LC Windows) Organic and inorganic light emitting diodes Advanced OLED Technologies Optoelectronics Effect pigments and functional materials for coatings, plastics, printing and cosmetics Pigments and Surface ~20-25% Functional materials for cosmetics & special Functional Materials Solutions applications Functional materials for electronics and energy solutions
28 “Bright Future” 5-year transformation program drives long-term performance
2018 2019 2020 2021 2022+
Back to organic Growth ▪ Refocus innovation and life cycle ▪ Exploit market growth of Semi & Surface management 2-3% CAGR ▪ Manage Liquid Crystal sales decline ▪ Explore growth in adjacent technologies
Resource allocation & process ▪ Centralized early research approach excellence ~30% Margin ▪ Efficient reallocation/adjustment of resources ▪ Rigid R&D portfolio management
Portfolio management ▪ Continuous review of entire portfolio ▪ Consider inorganic growth options ▪ Evaluation of partnering approaches ▪ Drive solution based business models
▪ Foster customer-centric mindset ▪ Market-driven innovation Cultural change ▪ Enhance a common Performance Materials spirit
29 Performance Materials Business portfolio management drives capital allocation and enables future value creation
Profitability
Invest for growth Invest for Strong and sustainable market growth Manage for growth Leading positions and attractive growth cash opportunities Semiconductor Display Solutions: LC Solutions Manage for cash Mature and lucrative market segments Surface Solutions Invest in extension, while managing for profit Build or Partner Build/Partner Divest Early industry cycles with strong potential e.g. Strictly prioritize and diversify risk Display Solutions: OLED, LC-Windows Divest Regular review for better strategic owner
Growth potential 30 Performance Materials will return to sales growth after 2019
Performance Materials sales development, 2019-2022 sales growth trajectory in €m
Semiconductor CAGR: Solutions Low single ~2-3% digit decline Mid- to high-single digit Trough growth year
Surface Solutions
Low-single digit growth
Display Solutions
Absolut org. decline of Absolute org. growth Low-single digit decline 2018E 2019E LC for displays of other businesses 2022E
After 2019 sales growth of Semiconductor & Surface Solutions, OLED and Photoresists will overcompensate the decline of Liquid Crystals for displays
31 Margins of PM will remain around 30% in the long-run
EBITDA pre margin indication by business
Profitability indication Display Solutions
• Display Solutions will adjust above Semiconductor towards PM average margin Solutions • Bottom-line management to support margin ~30% EBITDA pre margin • Strong FX exposure will cause fluctuations
Surface below Solutions
32 EXECUTIVE SUMMARY AND GUIDANCE Key EBITDA pre* drivers
EBITDA-supporting factors EBITDA-reducing factors
• Organic net sales growth by Healthcare and Life Science • Underlying R&D costs in Healthcare are budgeted above 2017, but actual development will be subject to clinical data outcome of priority • Sigma-Aldrich incremental cost and revenue synergies projects and prioritization decisions ~+€95 m YoY • Healthcare margins negatively impacted by product mix • Biosimilars divestment frees up R&D budget (2017: mid to high double-digit million R&D costs) • 2017 special gains of ~€200 m will not recur
• First full-year sales contribution from newly launched pipeline • Performance Materials sales and earnings continuously affected by products Mavenclad® and Bavencio® decline in Liquid Crystals
• BioMarin milestone payment of €50 m • First launch preparations for Mavenclad® U.S., driving M&S costs
• FX remains a strong headwind, esp. in H1 2018, and is slightly stronger than anticipated so far; expected EUR/USD 1.19-1.22 for FY 2018
*Constant portfolio 34 Group Full-year 2018 guidance*
Net sales: Organic +4% to +6% YoY FX ~ -3% to -5% YoY ~ € 14.4 – 14.8 bn
EBITDA pre: Organic -1% to -3% YoY FX -8 to -10% YoY ~ € 3,700 – 3,900 m
EPS pre: ~ € 5.00 – 5.30
* 35 Excluding Consumer Health Group on a growing and profitable trajectory
2019 Group EBITDA pre increase confirmed
2019 2018 Sales > Sales EBITDA pre > EBITDA pre Margin > Margin
Healthcare and Life Science will compensate for Performance Materials’ trough year
36
Group 2018 business sector guidance*
Performance Healthcare Life Science Materials
Net sales Net sales Net sales ▪ Sound organic growth of +4% to ▪ Organic growth ~+7% to 8%: slightly ▪ About stable with -1% to +1% YoY ® +5%: ongoing organic Rebif above market; all businesses ▪ Volume increases in major businesses decline offset by growth in other contributing; main driver Process ▪ Liquid Crystals temporarily benefiting franchises Solutions from China capacity ramp-up ▪ Full-year contributions from 2017 ▪ Full realization of expected topline launches synergies EBITDA pre EBITDA pre EBITDA pre ▪ Organic -1% to -2% YoY ▪ Organic ~+8% YoY ▪ Organic -14% to -16% YoY ▪ FX -9% to -11% YoY ▪ FX -3% to -5% YoY ▪ FX -6% to -8% YoY ▪ ~ €1,540 – 1,600 m (excl. CH) ▪ ~ €1,830 - 1,880 m ▪ ~ €745 – 785 m
* 38 Excluding Consumer Health Additional financial guidance 2018
Further financial details
Corporate & Other EBITDA pre ~ -€360 – -400 m
Interest result ~ -€230 – -250 m
Effective tax rate ~ 24% to 26%
Capex on PPE ~ €900 – 950 m
Q4/2018 – FY 2019 hedge ratio ~60% Hedging/USD assumption at EUR/USD ~1.20
2018 Ø EUR/USD assumption ~ 1.18 – 1.21
39 Group Merck KGaA, Darmstadt, Germany has clear financial priorities
Strong cash flow will be used to drive down gearing to <2x net debt / EBITDA pre in 2018 Larger acquisitions (>€500 m) ruled out for 2018 Focus on cash flow (or financed by divestments) and deleveraging Dividend policy that ensures a sustainable and resilient development
Synergy generation is utmost priority
Ongoing cost discipline Cost discipline continues in all business sectors Further efficiency gains from ongoing improvement and harmonization of processes and systems
All our businesses have growth potential Efficient capital allocation Decisions on growth investments are based on sound business cases and robust clinical data
Near-term financial priorities will secure Merck KGaA, Darmstadt, Germany‘s profitable growth path
40 Group Strong focus on cash generation to ensure swift deleveraging
1 Net financial debt and leverage development Focus on deleveraging
[Net financial debt/ EBITDA pre] • Commitment to swift deleveraging to ensure a strong investment grade credit rating and financial flexibility 4x • Cash flow will be used to drive down 3.5x leverage to expected 3x 3.5x <2x net debt/EBITDA pre in 2018
2.6x • Larger acquisitions (>€500 m) 2.5x * 2.6x 2.5x remain ruled out 2018 2x 2.3x <2x 1x <2x
0x 2015 2016 2017 Q3 2018 2018
Net financial debt Net financial debt / EBITDA pre
1Net financial debt (without pensions); *EBITDA pre (except FY) reflects last twelve months value including CH EBITDA pre (Q3 2018: €61 m) 41 Group Dividend growth sustained
Dividend1 development 2011-2017 2017 dividend
• Dividend of €1.25 (+4% YoY) per share approved for 2017 1.25 1.20 • 20.3% of EPS pre 1.05 • Sustainable dividend growth 1.00 2 0.95 • Dividend yield of 1.4% 0.85 0.75
1 1 1 2011 2012 2013 2014 2015 2016 2017
1Adjusted for share split, which has been effective since June 30, 2014; 2Calculated with 2017 year-end share price of 89.75€ per share 42 Healthcare Strategy The Healthcare Pipeline continues to deliver November 20, 2018
Phase I Phase II Phase III
M2698 avelumab tepotinib sprifermin avelumab - anti-PD-L1 mAb p70S6K & Akt inhibitor anti-PD-L1 mAb MET kinase inhibitor fibroblast growth factor 18 Non-small cell lung cancer 1L1 Solid tumors Solid tumors Non-small cell lung cancer Osteoarthritis avelumab - anti-PD-L1 mAb M3814 avelumab tepotinib atacicept Gastric cancer 1L-M1M DNA-PK inhibitor anti-PD-L1 mAb MET kinase inhibitor anti-BlyS/APRIL fusion protein avelumab - anti-PD-L1 mAb Solid tumors Hematological malignancies Hepatocellular cancer Systemic lupus erythematosus Ovarian cancer 1L1 and 1L-M1M M6620 (VX-970) M9241 (NHS-IL12) atacicept avelumab - anti-PD-L1 mAb ATR inhibitor Cancer immunotherapy avelumab anti-BlyS/APRIL fusion protein Ovarian cancer 1L1,5 anti-PD-L1 mAb Solid tumors Solid tumors IgA nephropathy avelumab - anti-PD-L1 mAb Merkel cell cancer 1L1 M4344 (VX-803) M7824 evobrutinib Urothelial cancer 1L-M1M avelumab ATR inhibitor anti-PD-L1/TGFbeta trap BTK inhibitor avelumab - anti-PD-L1 mAb Solid tumors Solid tumors anti-PD-L1 mAb Rheumatoid arthritis Renal cell cancer 1L1 Solid tumors2 M3541 evobrutinib avelumab - anti-PD-L1 mAb ATM inhibitor M6495 avelumab BTK inhibitor Locally advanced head and neck cancer Solid tumors anti-ADAMTS-5 nanobody anti-PD-L1 mAb Systemic lupus erythematosus 2 M8891 Osteoarthritis Non-small cell lung cancer M1095 (ALX-0761)4 MetAP2 inhibitor M5049 avelumab anti-IL-17 A/F nanobody Registration Solid tumors Immune receptor inhibitor anti-PD-L1 mAb Psoriasis 2 M7583 Immunology Urothelial cancer cladribine tablets BTK inhibitor abituzumab3 evobrutinib lymphocyte-targeting agent 6 Hematological malignancies M5717 pan-αν integrin inhibiting mAb BTK inhibitor Relapsing multiple sclerosis PeEF2 inhibitor 1 Colorectal cancer 1L Multiple sclerosis Oncology Malaria M7824 anti-PD-L1/TGFbeta trap Immuno-Oncology 1 Non-small cell lung cancer 1L Immunology Neurology Global Health
1 First-line treatment; 1M First-line maintenance treatment.2 Avelumab combination studies with talazoparib, axitinib, ALK inhibitors, chemotherapy, or novel immunotherapies. 3 As announced on May 2 2018, in an agreement with SFJ Pharmaceuticals Group, abituzumab will be developed by SFJ for colorectal cancer through Phase II/III clinical trials. 4 As announced on March 30 2017, in an agreement with Avillion, anti-IL-17 A/F nanobody will be developed by Avillion for plaque psoriasis and commercialized by Merck KGaA, Darmstadt, Germany. 5 Avelumab in combination with talazoparib. 6 As announced on July 30 2018, the US Food and Drug Administration (FDA) has accepted the resubmission of the New Drug Application (NDA) for cladribine tablets. 43 Pipeline products are under clinical investigation and have not been proven to be safe and effective. There is no guarantee any product will be approved in the sought-after indication. Healthcare Strategy Continuous newsflow of data throughout 2018 triggered next phases for our key assets
ASCO GI ASCO WCLC ECTRIMS ESMO (18-20 Jan) (1-5 June) (23-26 Sep) (10-12 Oct) (19-23 Oct)
]
TGF-ß trap/ Anti-PD-L1 (ph Ib) TGF-ß trap/ Tepotinib NSCLC/ ▪ Billiary tract: ORR 20% (indep.) Initiation of 2L Anti-PD-L1 (ph Ib) MET-Exon 14 (ph II) Potentially ▪ Gastric: ORR 22.6% (invest.), 16.1% BTC trial & ▪ ORR 57.5% (invest.) fileable ▪ Gastric (ORR 16 %) (indep.)3 decision on ▪ ORR 35.0% (indep.) ▪ NSCLC 2L: ORR 37.0%, mPFS 9.5 months2 further NSCLC ▪ ESCC: ORR 20.0% (all-comers) trial settings in H1 2019 ▪ EAC: ORR 13.3% (all-comers) ▪ SCCHN (Oral presentation): clinical Various ph II Avelumab MCC (launched) Evobrutinib MS (ph II) response rate of 54.5% in HPV+ tumors combination ▪ Positive read-out in MS ▪ 2 years safety/efficacy trials started ▪ Significant T1 Gd+ lesions Decision on Ph III design (MS) reduction versus placebo to follow in Q2 2019 TGF-ß trap/ ▪ Clinically relevant decrease Anti-PD-L1 (ph Ib) in ARR Ph II head-to- Avelumab RCC 1L (ph III) ▪ NSCLC 2L: ORR 71.4% head vs SoC 1 ▪ Primary endpoint met (PFS) in (mPFS / mOS not reached) (NSCLC 1L) planned interim analysis FDA filing in ▪ HPV-associated cancers: preparation ORR 41.7% (HPV+) ▪ mPFS: 13.8 months (indep.)2 ▪ ORR: 55% (indep.)2
1PD-L1 high; 2PD-L1 ≥ 1%; 3Update from ASCO GI; Abbreviations: 2L = second line therapy; PR = partial response; ORR = objective response rate; NSCLC = Non- small-cell lung carcinoma; (m)PFS = (median) progression-free survival; (m)OS = (median) Overall survival; HPV = human papillomavirus; SoC = standard of care; MCC = Merkel cell carcinoma; RCC = Renal cell carcinoma; RR = lesion rate ratio; ARR = annualised relapse rate; SCCHN = squamous cell carcinoma of the head and neck; ESCC = Esophageal squamous cell carcinoma; EAC = Esophageal adenocarcinoma; CRC = Colorectal Cancer 44 Oncology Strategy Strategy anchored on five foundational pillars
Targeted 1. Erbitux: continued leadership in CRC and SCCHN 1. Numerous Erbitux ISTs llllllll incl. combination with Avelumab 1 Oncology 2. Tepotinib: c-met driven cancers 2. Tepotinib in NSCLC, HCC
1. Monotherapy as a basis for combinations 1. NSCLC 1L (high intensity) 2. Establish immunogenic priming in combination or sequence with CT/RT1 2. Maintenance in UC 1L, gastric 1L, ovarian 1L Avelumab 2 3. Novel combinations 3. Avelumab + Inlyta (RCC 1L) 4. Establish value of unique molecular characteristics (ADCC) 4. Unique combinations leveraging ADCC
• TGF-beta trap/anti-PD-L1 IO bi- Engineer or access platforms where biology is best addressed llllllll • Anti-LAG-3/anti-PD-L1 functionals by a bi-functional approach 3 • NHS-IL 12
DNA Damage • DNA-PK-i Establish leadership in DDR and leverage synergies across portfolio Response • ATR-i (immuno-oncology plus emerging platforms) 4 inhibitors • ATM-i
Emerging • Antibody-Drug-Conjugates (ADC, 5 Platforms Invest in complementary technologies within focus discovery areas e.g. partnership with Mersana/Sutro)
Acronyms: CT: Chemotherapy | RT: Radiotherapy | ATM: ataxia-telangiectasia mutated |ATR: ataxia telangiectasia and Rad3 | DNA-PK: DNA-dependent protein kinase | 45 RCC: Renal Cell Carcinoma | MCC: Merkel Cell Carcinoma | NSCLC: non-small cell lung cancer | DLBCL: Diffuse Large B-cell Lymphoma | UC: Urothelial Cancer 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals Tepotinib: Highly selective c-met inhibitor Currently no approved therapy targeting METex14 and/or c-met amplification
Oncogenic drivers in lung adenocarcinoma1 Selectivity Profile2
• MET-mutations are clinically unique molecular subtypes of • ATP competitive, reversible small molecule c-Met NSCLC inhibitor3 2 • MET exon 14 alteration confer oncogene addiction in ~3-4 % • Highly selective according to preclinical benchmarking of NSCLC In panel of >240 kinases, only c-Met inhibited at 1 µM
• No approved therapy specifically targeting METex14 and/or >90% inhibition of phospho-c-Met levels (tumor biopsy) c-Met amplification
1 Cancer Genome Atlas Nature 2014;511:543-50; 2 Merck KGaA, Darmstadt, Germany data on file; 3 Bladt et al, 2013 46 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals Tepotinib: Program overview Development focus on biomarker enriched patient populations
2017 2018 2019 2020 Est. primary completion1
• Clinical activity demonstrated (interim) June + follow-up2 NSCLC MET Exon 14 Skipping Alterations • Planned enrollment: 120 (est.) – liquid and N tissue S LBx MET Amp. • Pr. endpoint: Confirmed ORR (Independent) C L • Enrollment: 70 (act.) C NSCLC 2L EGFRm Dec 2017 (results • Comparator: Pemetrexed + Cisplatin/ (with Gefitinib) presented at ESMO 2018) Carboplatin • Pr. endpoint: PFS (Investigator) … …
• Primary endpoint met HCC 1L Oct • Enrollment: 90 (act.) H • Pr. endpoint: TTP (Independent) C C • Primary endpoint met • Enrollment: 49 (act.; failed sorafenib) HCC 2L Feb • Pr. endpoint: PFS status 12 weeks (Investigator)
1 Timelines are event-driven and may be sbject to change; 2 Confirmed ORR expected approx. in June 2019, subsequent durability of response/follow-up period pending 47 outcome of discussions with health authorities 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals Tepotinib: Interim Phase II results Encouraging signs of activity in patients with advanced NSCLC harboring METexon14-skipping mutations
VISION Interim results presented at the Study Design1 World Conference on Lung Cancer (WCLC) 20181,2 • Encouraging signs of activity • Patient population: • ORR to date based on independent review (35.0%) and investigator Patients with advanced/metastatic NSCLC assessment (57.5% incl. two CR) (all histologies) that are METexon 14- skipping mutation-positive • Median duration of response based on investigator assessment is 14.3 months (95% CI: 3.7, nd) 46 patients treated • Safety: well tolerated, most common side effects were peripheral edema and Based in EU, US and Japan diarrhea 1L, 2L and 3L treatment Tepotinib 500 mg2 Investigator Independent • Treatment: Tepotinib 500mg QD Complete response 2 (5.0) 0 (0) • Primary endpoint: ORR (IRC) Partial response 21 (52.5) 14 (35.0) • Secondary endpoints: ORR (investigator Stable disease 6 (15.0) 11 (27.5) assessed), safety, duration of response, Progressive disease 5 (12.5) 8 (20.0) progression-free survival and overall survival Non-evaluable 6 (15.0) 7 (17.5)
ORR n (%) 23 (57.5) 14 (35.0)
DCR: n (%) 29 (72.5) 25 (62.5)
1 Felip E et al., ”Phase II Data for the MET Inhibitor Tepotinib in Patients with Advanced NSCLC and METexon14-Skipping Mutations”, presented at WCLC 2018; 2 Combined 48 analysis (n=40); efficacy analysis includes patients having at least 2 post-baseline assessments or who discontinued treatment for any reason (n=40) 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals Avelumab: Program overview Ongoing studies – Six Phase III trials, more than 15 tumor types
2018 2019 2020 2021 2022 Est. primary completion1
Leverage potential of unique 1 NSCLC 1L (mono/high-intensity) Oct molecular characteristics (ADCC)
Gastric 1L (SW-MN) Nov
Urothelial 1L (SW-MN)2 Establish potential of 2 immunogenic priming (incl. combination and Ovarian 1L (SW-MN) Sep sequencing with CT/CRT)
Locally Advanced Head & Neck Cancer (CRT) Apr
Renal Cell Cancer 1L (+Inlyta/TKi) Q1 Proprietary 3 combinations
Ovarian Cancer 1L (+PARP/Talazoparib) Q1
1 Estimated primary completion date according to Clinicaltrials.gov as of October 26, 2018; timelines are event-driven and may be subject to change; 2 Estimated primary 49 completion date being reprojected; Acronyms: NSCLC: Non Small Cell Lung Cancer, CT: Chemotherapy, CRT: Chemoradiotherapy, Plat. Res./Ref.: Platinum Resistant/Refractory, MN: Maintenance; SW: Switch 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals Avelumab: Renal Cell Carcinoma 1L Alliance will pursue US regulatory submission following positive Interim Analysis (PFS)
Interim Analysis1 results Study Design1 presented at ESMO 2018
• Study: PhIII JAVELIN Renal 101 Primary endpoints (PFS and OS in patients with PD-L1+ tumors): • mPFS Avelumab + Axitinib: 13.8 months • Patient population: 886 patients with • mPFS Sunitinib: 7.2 months advanced RCC across all risk groups, 63% PD-L1+ Key secondary endpoints (PFS and OS in overall population): • Comparator: BAVENCIO (avelumab) + • mPFS Avelumab + Axitinib: 13.8 months INLYTA (axitinib) vs SUTENT (sunitinib) as • mPFS Sunitinib: 8.4 months 1L therapy Confirmed Objective Response Rate: • Breakthrough Therapy Designation • ORR Avelumab + Axitinib: 55.2% granted by the FDA in December 2017 • ORR Sunitinib: 25.5%
Safety profile: favourable safety profile
• Alliance plans to pursue a regulatory submission in the US Next steps and discussions with other health authorities • Renal 101 will continue as planned to the final analysis (OS)
1 Motzer et al., „JAVELIN Renal 101: Randomized Phase 3 Trial of Avelumab + Axitinib vs Sunitinib as First-Line Treatment of Advanced Renal Cell Carcinoma“, presented 50 at ESMO 2018; Avelumab plus axitinib significantly improve progression-free survival in untreated renal cell carcinoma [ESMO 2018 Press Release], published on 21 October 2018 at https://www.esmo.org/Press-Office/Press-Releases/Javelin101-renal-cancer-immunotherapy-Motzer 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals Anti-PD-L1/TGF-ß trap (M7824) The first Phase II trial, evaluating M7824 monotherapy vs. pembrolizumab, was started in October 2018
Mode of Action Study Results & Next Steps • Manageable safety profile1 • Saturated peripheral PD-L1 and sequestered all released plasma TGF-β1, -β2, and -β31 • Great potential when combined with Standard of Care, immunotherapy and internal pipeline drug candidates • Status Quo & Next Steps: Dose level finding of Phase I completed Tested in 14 Phase Ib expansion cohorts across >700 patients PhII study M7824 monotherapy versus pembrolizumab 1L, advanced NSCLC high PD-L1-tumor expressers started in October 2018 Additional studies to be started in the course of 2019 • Innovative first-in-class bifunctional fusion protein designed to simultaneously target • Criteria allowing timely decisions: two immune suppressive pathways (blocking 1. Expand cohort and/or explore single-arm path-to-registration PD-L1 and reducing TGF-β signaling) 2. Expand cohorts to confirm signal and/or follow with randomized • Bifunctional mode should result in broader comparative trial application vs. respective mono-functional 3. Explore biomarker driven pan-tumor opportunities agents 4. De-prioritize cohort
1 As presented by J. L. Gulley at ASCO Annual Meeting 2017, June 5, 2017. 51 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals Anti-PD-L1/TGF-ß trap (M7824): Focus areas NSCLC & BTC Updated data presented at ESMO 2018 defined next steps
NSCLC 2L Biliary Tract Cancer (BTC)
• Need: NSCLC accounts for 80-85% of all cases of lung cancer1 • Need: Few available treatment options (no 2L standard of care)4
• Results: Encouraging efficacy comparing favorably to • Results: Encouraging activity5 in 30 Asian patients with established PDx-inhibitor monotherapy (IRC)2,3: pretreated biliary tract cancer
ORR (all-comers): 27.0% • ORR5: 20% (IRC assessment). Median DoR was NR (range, 8.3– 13.9 months) with confirmed responses ongoing in all patients ORR (PD-L1-positive): 37.0% • Overall Survival by IRC: ORR (PD-L1-high): 85.7% mOS: 12.7 months (6.7 – NR), comparing favorably with • Progression free survival by IRC (PD-L1 ≥ 1%): historical data in pretreated patients receiving second- or later line treatment (<7 months mOS in 2L4) M7824: mPFS = 9.5 months, competitor: 4.0 months2,3 Responses observed irrespective of PD-L1 expression levels5 • Overall Survival by IRC (PD-L1 ≥ 1%): • M7824: mOS not reached, competitor: 12.7 months2,3 Next steps
Next steps Further trial settings to be Next steps 2L BTC study to be initiated decided on in H1 2019 in H1 2019
1 Jemal A et al., Cancer statistics, 2007, CA Cancer J Clin 2007;57:43-66; 2 Paz-Ares et al., Poster presented at the 43rd European Society for Medical Oncology Annual Meeting, Munich, October 19–23, 2018, data shown for 1200mg Q2W dose; 3 Herbst et al.; Pembrolizumab versus docetaxel for previously treated, PD-L1-positive, advanced non-small- cell lung cancer (KEYNOTE-010): a randomised controlled trial (www.thelancet.com Published online December 19, 2015 http://dx.doi.org/10.1016/S0140-6736(15)01281-7); 52 4 Lamarca A, et al. Ann Oncol. 2014;25(12):2328–2338; 5 Yoo et al., Poster presented at the 43rd European Society for Medical Oncology Annual Meeting, Munich, October 19–23, 2018 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals Anti-PD-L1/TGF-ß trap (M7824): Phase Ib results (HPV cohort at NCI) HPV-assoc. cancers as potential pan-tumor therapy – prospective study ongoing at NCI
Patients with HPV-assoc. cancers BOR as confirmed by independent radiologist1
• Analyses of HPV+ cervical/SCCHN tumor samples from TCGA/Oncomine show frequent dysregulation of TGF-βR1 signaling – suggesting this pathway plays a role in HPV-mediated carcinogenesis
• HPV associated with almost all anal and cervical cancer, and some SCCHN2-4
• Retrospective subgroup analysis incl. 17 patients with HPV-associated cancers1:
Activity in all three tumor types N=17 N-12 BOR, n (%) (all HPV associated tumors) (all HPV-positive) Confirmed ORR = 41.7% (HPV+)1 ORR 6 (35.3)10 5 (41.7)10 Clinical activity of anti-PD-1 monotherapies in CR 2 (11.8)9 1 (8.3) range of 17–26%5-8 PR 4 (23.5)10 4 (33.3)10 SD 4 (23.5) 1 (8.3) • Phase II study by NCI specifically accruing PD 7 (41.2) 6 (50.0) patients with HPV-associated malignancies DCR 10 (58.8)10 7 (50.0)10
1 J.L. Gulley et al, ASCO, Jun 2018 (presentation); 2 De Vuyst et al. Int J Cancer. 2009;124:1626–36; 3 Ihloff et al. Oral Oncol. 2010;46:705–11; 4 Mehanna et al. Head Neck. 2013;35:747–55; 5 Bauml et al. J Clin Oncol. 2015;33 (suppl; abstr TPS3094); 6 Ferris et al. N Engl J Med. 2016;375(19):1856; 7 Frenel et al. J Clin Oncol. 2017;35(36):4035; 8 Ott et al. Ann Oncol. 2017;28(5):1036; 9 1 patient had a confirmed BOR or PR and an unconfirmed BOR of CR; 10 1 PR did not meet the RECIST criteria 53 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals DNA damage response (DDR) Complete portfolio supporting leadership in a potentially disruptive class
Genomic instability: a hallmark of late stage cancers1
• DNA damage response (DDR) keeps genetic information intact • In many cancers DDR pathways are defected, leading to greater dependency on remaining functional DDR pathways • Preferentially inhibiting remaining DDR pathways can result in cancer cell death (“synthetic lethality”)
Amplifying cytotoxic effects of conventional and novel cancer treatments potentially bears combination potential cancer treatments potentially bears combination potential 1. Inhibitor portfolio targets all three leading pathways of double stranded breaks – enabling unique synergies 2. ASCO 2017: leading DNA-PK-I (M3814) found safe and tolerable in a phase I study, with limited single-agent activity (20% of patients with stable disease for at least 18 weeks)2
1 Sources: O’Connor, Molecular Cell, 2015 | Benjamin et al., Current Drug Targets, 2010, 11, 1336-1340; 2 “A multicenter phase I trial of the DNA-dependent protein kinase (DNA-PK) inhibitor M3814 in patients with solid tumors”, Mark van Bussel, ASCO 2017; Acronyms: ATM: ataxia-telangiectasia mutated |ATR: ataxia telangiectasia and Rad3 | DNA-PK: DNA-dependent protein kinase | 54 55 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals DNA damage response (DDR) 4 Broad combination potential across multiple mechanisms
At least 50% of all cancer patients receive some type of RADIATION therapy (NCI 2016) Combination with CT
At least 70% of all cancer patients receive some Combination Combination type of CHEMOTHERAPY (NCI 2016) with RT with ADC DNA- PK
ATM ATR Significant share of patients to be treated with CHECKPOINT INHIBITORS Monotherapy Combination with DDR
Combination with IO
55 56 1 Targeted 2 3 IO bi- 4 Avelumab DDR Oncology functionals DNA damage response (DDR) Clinical program targets three major DDR pathways,
in mono- and combination (incl. Avelumab) Estimated primary completion1 2017 2018 2020 2017 2018 2019 2020
Phase I expansion cohorts ongoing in M6620 Sep combination with CT (TNBC, NSCLC, SCLC)
Phase I dose escalation ongoing for mono- M4344 Sep ATR-i and combination therapy (with CT)
Phase II study initiated (+Avelumab + M6620 + Avelumab Nov Carboplatin), PARPi-resistant ovarian cancer
Phase I dose escalation completed in Q4 17 M9831 Oct in combination with CT, MTD not reached
DNA- One study completed (mono), one study Jul PK-i M3814 ongoing (Phase I, combination with RT/ CRT)
Phase I dose escalation initiated (+Avelumab M3814 + Avelumab Oct with/without palliative RT), advanced solid tumors
ATM-i Phase I dose escalation ongoing in ATM-i Jul M3541 combination with RT
1 Estimated primary completion date acccording to Clinicaltrials.gov as of October 26, 2018; Acronyms: ATM: ataxia-telangiectasia mutated | ATR: ataxia telangiectasia and 56 Rad3 | DNA-PK: DNA-dependent protein kinase | CT: Chemotherapy | RT: Radiotherapy | CRT: chemoradiotherapy | NSCLC: non-small cell lung cancer | SCLC: small cell lung cancer | TNBC: triple negative breast cancer | MTD: Maximum Tolerated Dose; Note: timelines are event-driven and may change Immunology Immunology Strategy is anchored on leadership in selected disease areas
Sustain Build additional New frontiers leadership AI pillars
• OA disease modification Lupus AI Indications MS Leadership • SSc-ILD Fibrosis Core Focus Indications
Rebif: A pioneer Marketed / Filed assets Mavenclad: A new treatment paradigm
Atacicept Sprifermin
Clinical BTK-i Abituzumab pipeline IL-17
Pre-clinical Strong Discovery Engine pipeline
57 Immunology Immunology Mavenclad could change the MS treatment paradigm
Selective …followed by Unique reconstitution immune posology: reconstitution max. 20 days therapy of oral (SIRT)1 Selective reduction treatment3 in B & T lymphocytes…
100 Proportion of Patients Qualifying Relapse Free (%)2 80 4 years 77.8 75.6 60 disease Low control with 40 monitoring treatment over requirements4 2 years2 20 n=98 n=98 0 CLARITY CLARITY EXT Cladribine Tablets Cladribine Tablets 3.5mg/kg | Years 1 & 2 3.5mg/kg | Years 1 & 2 Placebo | Years 3 & 4
1 Giovannoni G. Neurotherapeutics 2017; Nov 22 [Epub ahead of print] | Wiendl H et al. Neurology 2017;89:1098‒100 | Weindl H. Nat Rev Neurol 2017; Sept 8 [Epub ahead of print] 2 Giovannoni G et al. N Engl J Med 2010;362:416–26 | Giovannoni G et al. Mult Scler Aug 1 [Epub ahead of print] 3 Maximum of 20 days of oral dosing over 2 years with no further treatment required in the next 2 years. For important safety information, refer to the abbreviated Prescribing Information | Oral, weight-based dosing. For an average patient weighing 67 kg. Recommended treatment over 2 years. One treatment course per year, followed by observation for another 2 years. Each treatment course consists of two treatment weeks, one at the beginning of the first month and one at the beginning of the second month of the respective year | MAVENCLAD® EU SmPC, September 2017 | Giovannoni G et al. N Engl J Med 2010;362:416–26 4 MAVENCLAD® EU SmPC September 2017 | Screening must be performed prior to initiation of therapy in Year 1 and Year 2. Vaccination of antibody-negative patients is recommended prior to initiation of Cladribine Tablets. AE, adverse event; HBV, hepatitis B virus; HCV, 58 hepatitis C virus; MRI, magnetic resonance imaging; NEDA, no evidence of disease activity; TB, tuberculosis Immunology Immunology 1 Mavenclad®ꞌs attractive label in Europe supports integrated franchise strategy
Mavenclad® label covers 2 Our overall NDD franchise 60-70% of patients with RRMS Integrated franchise 1 will cover a broad within the MS patient population MS patient pool strategy in Europe 3 4 MS patient population RRMS patients, EU-5 Disease Disease activity ® activity Mavenclad label • At patient level: Rebif ® and Mavenclad® are high high highly complementary
• At physician level: High overlap
• Franchise infrastructure investment benefits both low low brands Therapy Therapy Initiation Escalation Reserve Initiation Escalation Reserve
Prioritized for Prioritized for Not covered by label Mavenclad® Rebif®
1Mavenclad® label covers: RRMS+rSPMS+rPPMS; 2Abbreviations: RRMS = relapsing-remitting multiple sclerosis, MS = multiple sclerosis, rSPMS = replapsing secondary progressive MS, rPPMS = relapsing primary progressive multiple sclerosis; 3Source: Merck KGaA, Darmstadt, Germany; 4Source: Merck KGaA, Darmstadt, Germany, Ipsos; As of September 2018, Mavenclad was reimbursed in 22 countries globally 59 Immunology Evobrutinib Highly selective BTK-i to be explored as chronic therapy
Safety: Promising kinase selectivity Efficacy: Oral, highly efficacious in minimizing off-target effects1 pre-clinical models1
• Evobrutinib (irreversible antagonist) inhibiting signal transduction until protein is naturally degraded (no B-cell depletion)
• Occupancy/efficacy correlation: average BTK occupancy of >80% correlated with near complete inhibition of disease activity1 • Clinical benefit of addressing B cell biology • Greater selectivity vs. in-class competitors in kinase demonstrated by anti-CD20 Illustrative screen (>270 kinases) targeting agents
• Besides BTK, two more kinases inhibited (vs. 25 off- • Insights from phase IIa target kinases by others) trial (RA) leveraged in broad clinical development • Kinase selectivity may result in lower AE rate vs. program (three phase IIb existing treatments trials in MS, SLE, and RA)
1 “Pharmacodynamic Modelling of BTK Occupancy versus Efficacy in RA and SLE Models Using the Novel Specific BTK Inhibitor M2951” Abstract #4342; EULAR 2016 60 Immunology Evobrutinib First BTKi demonstrating clinical proof-of-concept in relapsing multiple sclerosis (RMS)1
Study Outcome presented at ECTRIMS 2018: Study Design Significant reduction of T1 Gd+ lesions vs placebo
• Design: Randomized, double-blind, Primary endpoint (T1 Gd+ lesions, wks 12-24, endpoint met): placebo-controlled study in patients with • T1 Gd+ lesion rate ratio vs placebo: RMS Evobrutinib 25 mg QD: 1.45 Evobrutinib 75 mg QD: 0.30 • Patient population: 267 patients Evobrutinib 75 mg BID: 0.44 • 5 arms: placebo vs. 3 drugs-arms (low, mid, high dose2) incl. open-label reference Key secondary endpoint (ARR, wk 24, clinically relevant decrease): arm (dimethyl fumarate, 240 mg BID) • Annualized Relapse Rate (ARR): Placebo: 0.37 3 • Gadolinium enhancing T1 (T1 Gd+) lesions Dimethyl fumarate: 0.20 measured at weeks 12, 16, 20 and 24 in Evobrutinib 25 mg QD: 0.57 comparison to patients receiving placebo Evobrutinib 75mg QD: 0.13 Evobrutinib 75mg BID: 0.08
Safety: • Well tolerated, no treatment associated infections, infestations or 48 wks data, informing lymphopenia observed Next Ph III trial design, to be • Elevated ALT, AST and lipase levels steps presented at an upcoming observed were reversible and medical congress in 2019 patients were asymptomatic
1 Motalban et al., “Primary Analysis of a Randomised, Placebo-Controlled, Phase II Study of the Bruton’s Tyrosine Kinase Inhibitor Evobrutinib (M2951) in Patients 2 61 with Relapsing Multiple Sclerosis”, presented at ECTRIMS 2018; evobrutinib 25 mg QD, 75mg QD and 75mg BID; 3 One patient considered an outlier, when accounted for the performance of dimethyl fumarate was in line with previous studies Immunology Evobrutinib Comprehensive development plan across immune-mediated diseases
Comprehensive phase I/IIa Robust phase II program to Est. primary safety data-set enable differentiated phase III completion
• Randomized, double-blind, placebo-controlled study in patients with RMS 48 wks data
• 267 patients presentation and )
Safety RMS • 5 arms study: placebo vs. 3 drugs-arms (low, decision on PhIII Ib ( • 24 patients mid, high dose) incl. active control trial design • Double-blind, Randomized, Placebo- (Dimethyl fumarate) expected in Q2 2019
SLE controlled Study
• Randomized, double-blind, placebo-controlled dose-ranging study in subjects with SLE SLE• 451 patients Q4 2019 SLE • 4 arms study: placebo vs. 3 drugs-arms (low, mid, high dose) ) Signal Finding
IIa • 65 patients ( • Randomized, double-blind, placebo- • Randomized, double-blind, placebo-controlled
RA controlled trial in subjects with RA on stable Methotrexate therapy dose-ranging study in subjects with RA RA • 360 patients Q2 20191 • 4 arms study: placebo vs. 3 drugs-arms (low, mid, high dose)
1 Data presentation not expected until Q3 2019. 62 All timelines are event-driven and may be subject to change. Process Solutions We are the only company to span the entire value chain of our customers
1 2017 Market share position estimate
Other
Unit operation Cell Culture Media Clarification Life Science Chromatography has a leading Virus position in 8 out of 9 TFF critical steps Across the process Aseptic Single-Use Hardware Buffers and Chemicals
63 = Top 3 Position by Marketshare = Not Top 3 Player = No Offering 1 Based on MilliporeSigma Market Research Process Solutions Next-generation bioprocessing on the cards
make purify
Launched 2018 Launched 2018 & portfolio &
® ® ® ® ® ® ® ® ® ® Today’s CHOZN Ex-Cell Mobius Clarisolve Eshmuno Viresolve ProSep Opticap Pellicon Durapore Millipak Cell Line Advanced™ bioreactor Depth Filters Chrom. resin Pro Solution Ultra Plus Filters Ultrafiltration Filtration Final Fill media Resin Cassettes Filter
process BioReliance ® cGMP SOLUTIONS & SERVICES EMPROVE®
Continuous bioprocessing will … • be an evolution in mAb bioprocessing • take time to establish • leverage the present
process • lead to hybrid solutions Tomorrow’s
64 64 Process Solutions Our single-use technologies drive flexibility in modern bioprocessing
30,000 l 500 l stain-less single-use steel tank tank
Traditional multi-use facility Innovative Single-use facility CAPEX* required ~$500 m to $1 bn CAPEX required $20 m to $100 m
Time to construct 5 to 10 years Time to construct 1.5 years
Change over time 4 weeks Change over time 0.5 days
Footprint ~>70,000 m2 Footprint ~11,000 m2
Strong demand for single-use technologies and Process Solutions’ broad offering was and will remain a key source of growth for Life Science
*CAPEX = Capital Expenditure 65 Life Science Democratization of mAbs market will drive diversification, change, variability
mAb volume projections 2018 to 2024
CAGR ~11-15% Market 35 development 30 • Overall mAbs market will grow ~11-15% CAGR 25 • Top 10 originator mAbs represent ~ 60% of market volume today and 20 will decline to ~20% in 2024 15 • Biosimilars will gain share
Volume[metric tons] 10
5
0 2018 2024 2 1 Top 10 mAbs New mAbs Biosimilars
1Biosimilars scaling factor = 2.8 based off internal estimates and McKinsey analysis; 2Top 10 mAbs by 2017 volume, includes Enbrel. Source: EvaluatePharma | Sept 2018; mAbs = Monoclonal antibodies 66 67 Applied Solutions Broad offering across the dynamic cell and gene therapy value chain
Understand Prove Deliver
Merck KGaA, Darmstadt, Germany offering
Develop cutting-edge tools Create cell lines and cell models • Offer cGMP clinical and for scientists to for testing safety and efficacy commercial manufacturing, e.g. • Uncover foundational • Pharmacokinetics (ADME) manufacture viral vectors understanding, e.g. CRISPR • Toxicology testing • Improve the supply chain of patent grants in 7 geographies cell therapy, e.g. cell and gene • Potency model therapy products and services • Modify genetic functions, e.g. • Examples: primary human CRISPR/Cas 9 tools, library hepatocytes, Intestine, liver and and reagents, ZFN kidney assays
Merck KGaA, Darmstadt, Germany is a supplier of novel products and services with a strong IP portfolio to meet the rapidly growing demand for novel therapies
*Abbreviations: CRISPR = Clustered Regularly Interspaced Short Palindromic Repeats; VGT = Virology and Gene Therapy, ZFN = zinc finger nuclease; ADME = absorption, distribution, metabolism, and excretion; GMP = good manufacturing practice 67 Research Solutions Leading e-Commerce and operational excellence to serve customers
Unique Highly reputable Impeccable Customer Experience e-commerce platform Supply chain
in Life Science for web traffic products Hundreds of #1 >300K thousands of products Ranking of websites:* sigmaaldrich.com No. 1 ~13 m lines shipped SEARCH thermofisher.com No. 2 per year fishersci.com No. 3 vwr.com No. 4 Articles, protocols fill rate globally and peer reviewed emdmillipore.com No. 5 ~90% papers unique visits >100 m >80% of lines shipped SCIENTIFIC within 24-48 hours in Western CONTENT >€ 1.5 Bn sales Europe and North America
Real-time pricing >30% of our eCommerce orders contain and availability products from former Sigma AND Millipore ORDER
*Alexa report, global, all sectors – Web traffic ranking June 2018: sigmaaldrich.com = Rank 3,361, thermofisher.com = Rank 3,935, fishersci.com = Rank 17,473, vwr.com = Rank 27,061, emdmillipore.com = Rank 29,637 68 Semiconductor Solutions Key enabler for digital trends
~€8 bn ~€40 bn ~€1,250 bn Wafer production Equipment Electronics market CAGR 18-25: ~3% CAGR 18-25: ~4% ~€380 bn Semiconductor Core business market ~€15 bn CAGR 18-25: ~5% ~€38 bn ...customer needs Materials Wafer processing - Smaller structures beyond market CAGR 18-25: ~5% limitations of existing technologies CAGR 18-25: ~3% ~€20 bn - Higher memory capacity, faster Services PM’S Semiconductor processing speed, less power Materials enable... consumption ~€15 bn - Improved yield and lower Wafer packaging Illustration of the electronics market and thereof its selected sub markets processing costs CAGR 18-25: ~2%
Performance enhancing materials will benefit over-proportionately from attractive semiconductor growth rate of 5% CAGR
69 Semiconductor Solutions Well positioned in highly attractive market segments
Market landscape of wafer processing and packaging materials
Return
Patterning Thick film resists Deposition & permanent Market positioning WLP dielectrics
Die attach/ Thermal conductive paste intf. Mat. • Positioned in attractive sub-segments
Underfill Liquid encapsulant • Focus on enabling material solutions with small part in bill Lead- frame Gases of materials
Planarization • Address innovative technologies Bonding wire through collaborative R&D Cleans & other Organic • Above-market growth substrates • Opportunities to increase footprint CAGR (%) 2017-2025
-5 0 5 10 15 Not addressed Addressed Bubble size corresponds by Merck KGaA, by Merck KGaA, to market size Darmstadt, Darmstadt, Germany Germany
70 Semiconductor Solutions Enabler of key technology trends
Newest generation of Lithography Dielectric Conductive Pastes smartphones materials materials Electrically conductive Innovation focus: Enabling cost-efficient materials for use in Enabling structures production of the the manufacture of in nodes smaller newest memory advanced electronic than 14 nm generations devices Servers enabling Big Data
• Smaller structures by materials enabling Moore’s law • Higher memory capacity, faster processing speed, less power consumption • Improved yield and lower processing costs
Wearables and other devices for Internet Process Silica materials Deposition of Things materials Innovation focus: Materials Supporting the High removal rate in Next Generation manufacturing CMP without defects Deposition materials process for all kinds for ALD and CVD of IC devices, e.g. IoT
71 Semiconductor Solutions Overcoming technology barriers – supporting continued progression of technological mega trends Market drivers and technological trends Feature sizes develop as predicted by Moore‘s law Miniaturization: Devices are becoming smaller with better performance
Need for enabling materials to reduce size (Moore’s law) Feature size
Mobility: Everyone is continuously connected without direct power supply More chips needed for local energy production 30nm 25nm Energy storage smaller batteries with higher density DRAM
NAND Internet of Things: Everything is continuously connected 20nm More gadgets and devices that include chips 20nm 1Xnm Increasing amount of communication and sensor chips 20nm 19nm
1Ynm Big Data: Increasing need for intelligent data storage 14nm Switch from hard disk drives (HDD) to solid state drives (SSD) 10nm Logic 10nm
Selected competitors 7nm 0nm • Tokyo Ohka Kogyo • Dow Electronic Materials 2013 2014 2015 2016 2017 2018 2019 2020 • Nissan Chemicals • JSR
72 Display Solutions Liquid crystals are clearly the dominant display technology
Market share by display technology Rationale for LCD leadership
Relative display For consumers: surface area 1% • Price 100% 6% • Thinner frames 90% • Higher resolution in all sizes 80% • Proven track record of extreme reliability 6% 70% For manufacturers: 60% 81% • Price and scalability
50% 99% 99% • Production costs and capacities 93% 40% 72% 30% LCD progress creates higher techno- logical and commercial entry barriers 20% 4% 10% 15% OLED share will increase in mobile 0% applications 2002 2005 2009 2012 2015 2019E 2022E
CRT Plasma LCD OLED
Source: IHS display long term demand forecast tracker Q4 ‘17 73 Organic growth in all regions
Regional breakdown of net sales [€ m] Regional organic development
Europe +7.6% •Strong growth in Europe reflects strong org. ® demand in Life Science, Mavenclad ramp up, and continued resilience of Fertility 30% •Solid growth in North America due to Life ® Science; Fertility and Bavencio more than ® North America +4.7% offset ongoing decline of Rebif org. Q3 2018 •Solid growth in APAC across all major Net sales: businesses, driven by double-digit growth €3,749 m 34% 26% Asia-Pacific +11.1% in Life Science, Healthcare and PM org. •Very strong performance in LATAM driven 6% by Healthcare and Life Science 4% •MEA reflects strong demand of Healthcare’s core business, mainly Glucophage® and 12.4% Latin America Middle East & Africa 19.7% ® org. org. tender phasing of Erbitux
Acronyms: APAC – Asia-Pacific; MEA – Middle East & Africa; LATAM – Latin America 74 Q3 2018: Overview
Key figures Comments
[€m] Q3 2017 Q3 2018 Δ •EBITDA pre & margin reduction driven by Net sales 3,517 3,749 6.6% FX effects & hedging losses, investments in LS, PM business mix and LY milestone EBITDA pre 1,023 963 -5.9% payments in HC Margin (in % of net sales) 29.1% 25.7% •Lower EPS pre in line with EBITDA pre EPS pre 1.43 1.32 -7.7% decline •Net financial debt reduced by €506 m Operating cash flow 758 731 -3.5% vs. June 30th 2018 •Working capital reflects strong organic [€m] Dec. 31, 2017 Sept. 30, 2018 Δ sales growth •Higher headcount related to growth Net financial debt 10,144 10,168 0.2% initiatives in Life Science and launch activities in Healthcare Working capital 3,387 3,784 11.7%
* Employees 52,941 54,756 3.4%
*Thereof CH Headcount ~3.400; Totals may not add up due to rounding 75 Organic growth across all business segments
Q3 2018 YoY net sales •Healthcare reflects strong growth driven by solid core business and launches of Organic Currency Portfolio Total ® ® Mavenclad and Bavencio Healthcare 9.9% -3.3% 0.0% 6.6% •Above-market growth in Life Science driven Life Science 9.8% -1.4% 0.0% 8.5% by all business segments •Performance Materials reflects ongoing strong Performance Materials 3.4% -0.9% 0.0% 2.4% demand of Semiconductor & OLED; new plant ramp up projects in China supported LC Group 8.8% -2.1% 0.0% 6.6%
Q3 YoY EBITDA pre •Organic growth reflects strong topline mitigated by LY one-time effect in Healthcare, LS €1,023 m 3.7% -9.5% 0.0% €963 m strategic investments and PM business mix •FX impact exacerbated by transactional effects * * from depreciating BRL & ARS
Q3 2017 Organic Currency Portfolio Q3 2018 Totals may not add up due to rounding; *BRL = Brazilian real; ARS = Argentine peso 76 Healthcare: Strong organic growth overcompensates FX headwinds; Profitability burdened by LY’s favorable one-time effects
Healthcare P&L Comments
[€m] Q3 2017 Q3 2018 • Strong organic growth fueled by double-digit growth of Fertility and ® ® ® Net sales 1,498 1,596 Glucophage ; Mavenclad and Bavencio launches on track ® Marketing and selling -583 -571 • Erbitux benefitting from phasing, still facing ongoing competition and price pressure in major markets Administration -64 -72 ® • Ongoing decline of Rebif due to competition in U.S. & EU Research and development -416 -409 ® • FX offsetting M&S investments for Mavenclad 539 191 * * EBIT • EBITDA pre reflects FX headwinds (mainly BRL & ARS ) strong EBITDA 707 372 topline contribution offsets unfavorable prior year effect (two ® EBITDA pre 397 381 Bavencio milestones of ~€50 m) Margin (in % of net sales) 26.5% 23.9%
Net sales bridge EBITDA pre bridge
€1,498 m 9.9% -3.3% 0.0% €1,596 m €397 m 3.8% -7.7% 0.0% €381 m
Q3 2017 Organic Currency Portfolio Q3 2018 Q3 2017 Organic Currency Portfolio Q3 2018
Totals may not add up due to rounding; *BRL = Brazilian real; ARS = Argentine peso 77 Life Science: Strong organic sales growth across all businesses drives EBITDA pre
Life Science P&L Comments • Process Solutions posts double digit growth driven by all businesses, [€m] Q3 2017 Q3 2018 especially strong demand for filtration and single-use Net sales 1,408 1,527 • Applied Solutions shows high-single digit growth, reflecting continued Marketing and selling -412 -443 strong demand for lab water Administration -59 -69 • Research Solutions benefits from positive demand trends across all Research and development -60 -59 businesses and regions, especially reagents and laboratory chemicals EBIT 220 277 • Strategic investments in viral vector manufacturing, single-use EBITDA 401 449 bioprocessing and China expansion start to impact topline growth EBITDA pre 426 460 • M&S increase in line with previous quarters and topline growth Margin (in % of net sales) 30.2% 30.1% • EBITDA pre reflects strong topline growth, offset by investments in eCommerce and strategic initiatives as well as FX headwinds Net sales bridge EBITDA pre bridge
€1,408 m 9.8% -1.4% 0.0% €1,527 m €426 m 11.9% -3.7% 0.0% €460 m
Q3 2017 Organic Currency Portfolio Q3 2018 Q3 2017 Organic Currency Portfolio Q3 2018
Totals may not add up due to rounding 78 Performance Materials: Organic growth mainly driven by Semiconductor Solutions
Performance Materials P&L Comments
[€m] Q3 2017 Q3 2018 • Moderate organic growth in PM driven by growth of Semiconductor Net sales 611 626 Solutions & OLED; LC benefited from new panel plant ramp up projects in China Marketing and selling -56 -62 • Above-market growth of Semiconductor Solutions reflects strong Administration -18 -22 demand of dielectrics, silica and lithography materials Research and development -57 -65 • Ongoing strong demand for innovative UB-FFS technology EBIT 191 142 • M&S in line with topline growth and with previous quarters EBITDA 246 202 • Increased R&D due to Semiconductor Solutions related projects EBITDA pre 249 203 Margin (in % of net sales) 40.7% 32.5% • Profitability reflects negative business mix and ongoing LC price decline Net sales bridge EBITDA pre bridge
€611 m 3.4% -0.9% 0.0% €626 m €249 m -15.8% -2.5% 0.0% €203 m
Q3 2017 Organic Currency Portfolio Q3 2018 Q3 2017 Organic Currency Portfolio Q3 2018
Totals may not add up due to rounding 79 Performance Materials: Strong quarter benefitting from continued demand in Semiconductor Solutions
Net sales by BU, in % Semiconductor Solutions Display Solutions High single-digit growth above market driven by volume and market share wins 24% Increasing demand for patterning and Continued increasing demand in UB-FFS dielectric materials at 3D NAND and DRAM for small devices customers Partner of choice for bringing new Spin-on dielectrics driving double digit Q3 2018 capacity online (limited time frame) growth with market share gains Net Sales Underlying trend of declining LC * 57% Strong consumption of deposition and CMP materials market still valid materials at customers € 626 m LC related materials < 50% of total PM net sales OLED participating in capacity expansion 19% with double digit growth Surface Solutions
Flat automotive market in China
Lateral development of overall surface *CMP = chemical mechanical planarization 80 solutions business Performance Materials: Liquid crystals currently benefitting from new display-panel plant capacity ramp up projects
Share of global display production * capacities by region [km²] Temporary nature • Accelerated ramp up of Chinese panel production facilities • Projects supporting LC business in Q3 and expected to last until H1 2019 • Increased market share during ramp up phase, but dual sourcing afterwards highly probable 2010 2013 2016 2019 • Overcapacity in 2018 due to massive capacity ramp up in China, global capacity is expected to consolidate in 2019 ➢ Some manufacturing capacity might be converted to OLED or might be taken off Japan, Taiwan & South Korea China combined
Overall LC materials market decline in value with mid- to high-single digit CAGR until 2025 confirmed
Source: AMOLED and LCD supply-demand-equipment tracker Q2’18 81 *Capacity estimation based on 100% utilization and 100% yield Performance Materials: Semiconductor market outlook
Wafer shipments forecast, * in [MSI ] Market development • Semiconductor market (revenue) is heavily
3 500 influenced by the prices in the memory Jan report segment Sep report • The material suppliers are relatively 3 250 independent from this memory price trend
• Wafers shipments (in million square inches, MSI) is a better indicator of volume growth 3 000 for material suppliers
• MSI is independent of the volatile memory 2 750 prices and reflects end user demand
• MSI is expected to grow at 7% in 2018 and slightly softer at 5.2% in 2019 2 500 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18 Q1/19 Q2/19
Total Semiconductor Market is strongly influenced by memory pricing, while the Materials Market is correlated with the wafer area
Source: Linx Consulting ESF reports; * 82 MSI = Million Square Inches Reported figures
Reported results Comments
[€m] Q3 2017 Q3 2018 Δ •Lower EBIT reflects LY effects of EBIT 862 491 -43.1% Biosimilars disposal gain (~€321 m) and Bavencio® milestone payments (~€50 m) Financial result -65 -56 -14.5% •Profit before tax in line with EBIT decrease Profit before tax 797 435 -45.4% •Effective tax rate within guidance range of ~24-26% Income tax -177 -112 -36.9%
Effective tax rate (%) 22.2% 25.7%
* Net income 644 340 -47.2%
* EPS (€) 1.48 0.78 -47.3%
*From continuing and discontinued operations; Totals may not add up due to rounding 83 Cash flow statement
Q3 2018 – cash flow statement Cash flow drivers •LY profit after tax reflects gain from [€m] Q3 2017 Q3 2018 Δ Biosimilars divestment, which is neutralized in Profit after tax 648 345 -303 other operating activities D&A 419 428 9 •Changes in provisions driven by pension provisions and LTIP Changes in provisions -50 69 119 •Changes in other assets/liabilities includes LY Changes in other assets/liabilities 99 6 -93 upfront payment from Fresenius for future R&D activities Other operating activities -327 -9 318 •Changes in working capital reflects higher Changes in net working capital -31 -107 -76 trade account receivables mainly from HC and buildup of inventories mainly from LS and PM Operating cash flow 758 731 -27 •Investing cash flow reflects LY Biosimilars Investing cash flow -90 -218 -128 cash proceeds ~€150 m
thereof Capex on PPE -197 -215 -18 •Financing cash flow reflects decrease in bank loans and commercial papers; LY includes Financing cash flow -844 -287 557 bond repayment ~€700 m
Totals may not add up due to rounding; LTIP = Long-term incentive plan 84 Healthcare organic growth by franchise/product
Q3 2018 organic sales growth [%] 9M 2018 organic sales growth [%] by key product [€ m] by key product [€ m]
363 -5% 1 094 -5% 389 1 229
212 +7% 615 +1% 207 638
182 532 +12% +6% 169 533
188 517 +26% +12% 155 485
116 335 +13% +4% 106 336
91 265 +1% +0% 93 276
Q3 2018 Q3 2017 9M 2018 9M 2017
Totals may not add up due to rounding 85 ® Rebif : Ongoing decline in line with interferon market
® ® Rebif sales evolution Q3 2018 Rebif performance
® North America Q3 drivers •Rebif sales of €363 m in Q3 2018 [€ m] reflect organic decline of -5.2% and -1.8% org. negative FX effect of -1.5% mainly 300 Price increase Price Price from LATAM increase •Market shares within interferons 225 Volume stable due to high retention rates
150 FX and known long-term track record Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 •Competitive environment in Europe incl. competition from orals driving Europe Q3 drivers ongoing organic decline [€ m] -15.5% org. 115 Price 95 Volume 75 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 FX
86 ® Erbitux : A challenging market environment
® ® Erbitux sales by region Q3 2018 Erbitux performance
+7.0% Q3 YoY •Absolute sales increase to €212 m due to [€ m] organic growth organic sales growth of +7.0%, 250 mitigated by FX headwinds of -5.0% mainly from LATAM and EU +11.9% 200 •Growth in Europe due to tender phasing; still impacted by ongoing competition, +1.2% 150 price reductions and shrinking market size due to increasing i-onc trials +40.3% 100 •APAC about stable mainly driven by increased demand in China +6.3% 50 •LATAM strong, and MEA driven by tender phasing due to importation permit 0 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
Europe Middle East & Africa Asia-Pacific Latin America
87 Solid organic growth of Fertility, General Medicine and Endocrinology
Sales evolution Q3 2018 organic drivers Fertility [€ m] •Fertility with double digit growth across all regions, especially in North America, 274 301 298 300 263 265 200 Organic APAC and Europe 100 +17.9% org. ® 0 •Gonal-f shows double digit growth, Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 supported by increasing demand in Endocrinology North America and APAC [€ m] •Rest of Fertility portfolio shows ongoing 150 92 98 93 87 strong increases, especially in China and 100 86 Organic Europe 50 -1.1% org. 0 •General Medicine reflects double digit Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 ® growth of Glucophage (China & MEA) General Medicine* [€ m] •Endocrinology posts slight decline driven 600 472 525 447 507 533 by lower demand in U.S., mitigated by 400 Organic growth in APAC, LATAM and EU 200 11.9% org. 0 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
*includes “CardioMetabolic Care & General Medicine and Others 88 Balance sheet – deleveraging remains focus
Assets [€ bn] Liabilities [€ bn]
35.6 35.7 35.7 35.6 Cash & marketable securities 0,7 0,9 2,9 3.0 Receivables 2,6 2,8 Net equity Inventories 15,3 14,1
Intangible assets 21,9 21,2 Financial debt 10,8 11,1
2,2 Payables 2,1 2,3 Property, plant & equipment 2,1 Provisions for pensions 4,5 4,5 5,2 6,3 Other liabilities Other assets 3,0 3,3
Dec. 31, 2017 Sept. 30, 2018 Sept. 30, 2018 Dec. 31, 2017
• Total assets about stable, with an increased equity ratio of 42.9% • Higher net equity reflects 9M net income (~+€0.9 bn) and FX (~+€0.3 bn) • Decrease in intangible assets reflects D&A (~-€0.9 bn) mitigated by • Other liabilities decrease mainly driven by profit transfer to E. Merck KG, FX (~+€0.4 bn) Darmstadt, Germany
Totals may not add up due to rounding 89 Adjustments in Q3 2018
Adjustments in EBIT
[€m] Q3 2017 Q3 2018
Adjustments thereof D&A Adjustments thereof D&A
Healthcare -327 -17 9 0
Life Science 24 0 16 5
Performance Materials 2 0 1 0
Corporate & Other 29 0 23 0
Total -271 -17 49 5
Totals may not add up due to rounding 90 Financial calendar
Date Event March 7, 2019 FY 2018 Earnings release
April 26, 2019 Annual General Meeting
May 14, 2019 Q1 2019 Earnings release
August 8, 2019 Q2 2019 Earnings release
91 CONSTANTIN FEST SVENJA BUNDSCHUH ALESSANDRA HEINZ
Head of Investor Relations Assistant Investor Relations Assistant Investor Relations +49 6151 72-5271 +49 6151 72-3744 +49 6151 72-3321 [email protected] [email protected] [email protected]
ANNETT WEBER NILS VON BOTH
EMAIL: [email protected] WEB: www.emdgroup.com/investors Institutional Investors / Institutional Investors / FAX: +49 6151 72-913321 Analysts Analysts +49 6151 72-63723 +49 6151 72-7434 [email protected] [email protected]
EVA STERZEL PATRICK BAYER
Retail Investors / AGM / Institutional Investors / CMDs / IR Media Analysts +49 6151 72-5355 +49 6151 72-5642 [email protected] [email protected]