MERCK Kgaa, DARMSTADT, GERMANY Annual Financial Statements 2017 DISCLAIMER

350 MERCK KGaA, DARMSTADT, GERMANY Annual Financial Statements 2017 DISCLAIMER Publication of Merck KGaA, Darmstadt, Germany. In the United States and Canada the subsidiaries of Merck KGaA, Darmstadt, Germany, operate as EMD Serono in Healthcare, MilliporeSigma in Life Science and EMD Performance Materials. To reflect such fact and to avoid any misconception of the reader of the publication certain logos, terms and names of businesses 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. ALWAYS CURIOUS I AGINE THE NEXT 350 YEARS We have been demonstrating our innovative strength for 350 years. Curiosity connects us. It drives human progress – and challenges us to imagine the next 350 years. Table of contents Combined Management Report 004 – 114 Annual Financial Statements 005 Fundamental Information 116 – 170 about the Group 116 Balance Sheet as of 005 The Group December 31, 2017 012 Objectives and strategies 117 Income Statement from the period 018 Internal Management System from January 1 to December 31, 2017 022 Corporate Responsibility 119 Notes to the Annual Financial Statements 031 Research and development 119 General Disclosures 042 People 121 Notes to the Balance Sheet 130 Notes to the Income Statement 048 Report on Economic Position 134 Other Disclosures 048 Macroeconomic and sector-specific environment 138 Members of the Executive Board of Merck KGaA, Darmstadt, Germany 051 Review of Forecast against Actual Business Developments 139 Supervisory Board 058 Course of business and 140 Disclosures in accordance with section economic position 160 (1) no. 8 of the German Stock Corporation Act (Aktiengesetz, AktG) 058 Group 142 List of Shareholdings of Merck KGaA, 069 Healthcare Darmstadt, Germany 077 Life Science as of December 31, 2016 082 Performance Materials 087 Corporate and Other 164 Independent Auditor’s Report 169 Responsibility Statement in accordance with section 264 (2) 088 Report on Risks and Opportunities sentence 3 HGB and section 289 (1) 100 Report on Expected Developments sentence 5 HGB 106 Report in accordance with 170 Report of the Supervisory Board section 315 (4) of the German Commercial Code (HGB) The figures presented in the Notes to the Annual 108 Additional information in accordance Financial Statements have been rounded according with the German Commercial Code to commercial rounding methods. As a consequence, (HGB) individual values may not add up to totals presented. Combined Management Report 3 COMBINED MANAGEMENT REPORT 004 – 114 1 4 Combined Management Report Combined Management Report Combined Management Report The management report of Merck KGaA, Darmstadt, Germany, has been combined with the Group management report. The annual financial statements and the combined management reports of the Group and Merck KGaA, Darmstadt, Germany, for 2017 are being filed with the electronic German Federal Gazette (elektronischer Bundes anzeiger) and are available on the website of the German company register. Combined Management Report Fundamental Information about the Group The Group 575 Fundamental Information about the Group The Group We are a global science and technology company headquartered in BIOPHARMA Darmstadt, Germany. With a history of nearly 350 years, we are the Our Biopharma business discovers, develops, manufactures and oldest chemical and pharmaceutical company in the world. In line markets innovative pharmaceutical and biological prescription drugs with our strategic direction, our company comprises three business to treat cancer, multiple sclerosis (MS), infertility, growth disorders sectors: Healthcare, Life Science, and Performance Materials. as well as certain cardiovascular and metabolic diseases. Biopharma In Healthcare, we discover, develop and manufacture prescription is the largest of our Healthcare businesses. We operate in four fran- medicines used to treat cancer, multiple sclerosis, and infertility. Our chises: Oncology, Neurology & Immunology, Fertility, and General products help millions of people around the world. Medicine & Endocrinology. Our streamlined R&D pipeline positions In Life Science, we conduct research for researchers, providing us with a clear focus on becoming a leading specialty innovator in scientists with laboratory materials, technologies and services. Our oncology, immuno-oncology and immunology, including multiple aim is to make research and biomanufacturing easier, faster and sclerosis. more successful. In 2017, we reinforced our commitment to growing our immu- Performance Materials develops specialty chemicals and materials nology pipeline to provide new options to better the lives of people for demanding applications – from liquid crystals and OLED materials with immunological diseases with the receipt of regulatory approvals for displays to effect pigments for coatings and cosmetics up to high- for Mavenclad® (cladribine tablets) in the 28 member states of the EU tech materials for the manufacture of integrated circuits. as well as Liechtenstein, Iceland and Norway; Canada and Australia. We operate globally under our corporate brand – the only exceptions We reached important development milestones for atacicept and are Canada and the United States. In these countries, we operate as sprifermin, reporting our results at key medical meetings around the EMD Serono in the biopharmaceutical business, as MilliporeSigma in world. the life science business and as EMD Performance Materials in the In June, the Committee for Medicinal Products for Human Use high-tech materials business. (CHMP) of the European Medicines Agency (EMA) issued a positive Apart from our three business sectors, our fi nancial reporting opinion for approval of Mavenclad®. Data from clinical trials indicate presents the fi ve regions Europe, North America, Asia-Pacifi c (APAC), that Mavenclad® can lead to high and sustained effi cacy through Latin America as well as Middle East and Africa (MEA). As of Decem- selective modulation of B and T cells, resulting in lasting resolution ber 31, 2017, we had 52,941 employees worldwide, which compares of inﬂ ammation. We have robust data relating to the safety and with 50,414 on December 31, 2016.1 tolerability profi le and consider our unique oral shortcourse treatment to be an important therapeutic option for patients with relapsing multiple sclerosis (RMS) with high disease activity. We view Mavenclad® Healthcare as a complementary new oral treatment option in our MS product portfolio. Our MS treatment Rebif® is and remains a well-established Our Healthcare business sector comprises the three businesses therapy. Biopharma, Consumer Health, and Allergopharma. Since 2015, Belén In August, the European Commission (EC) granted marketing Garijo has been the CEO of our Healthcare business sector and authorization for Mavenclad® in the treatment of highly active relapsing member of the Executive Board. In 2017, Healthcare generated 46% multiple sclerosis. In December, the Therapeutic Goods Administration of Group sales and 41% of EBITDA pre (excluding Corporate and (TGA) in Australia updated the registration including the indication, Other), making it the largest of our three business sectors. The dosing and safety information of Mavenclad® for the treatment of regions Europe and North America generated 57% of Healthcare’s relapsing-remitting (RRMS), and Health Canada approved Mavenclad® net sales in 2017. In recent years, we have steadily expanded our as monotherapy for the treatment of adult patients with RRMS. In presence in growth markets. In 2017, Asia Pacifi c and Latin America January 2018, the Israeli Ministry of Health approved Mavenclad® accounted for 36% of sales. Our divestment of the Biosimilars for the treatment of adult patients with highly active relapsing MS business to Fresenius closed on August 31. as defi ned by clinical or imaging features. 1 The Group also has employees at sites which are not fully consolidated subsidiaries. These fi gures refer to all people directly employed bythe Group and therefore may deviate from fi gures in the fi nancial section of this report. 586 Combined Management Report Fundamental Information about the Group The Group We presented data on sprifermin, our investigational treatment for the JAVELIN program were presented at major medical congresses knee osteoarthritis, at the ACR/ARHP Annual Meeting held in Novem- in 2017 to help advance understanding of the fi eld of immuno- ber. The study of 549 patients met its primary endpoint, demon- oncology, and this will continue in 2018. strating statistically signifi cant, dose-dependent increases in MRI In November, we announced that our Phase III JAVELIN Gastric total fe morotibial joint cartilage thickness from baseline in the two 300 study did not meet its pre-specifi ed primary endpoint of superior sprifermin groups receiving the highest doses as compared with the overall survival. The study set a high bar for success and although placebo group after the two-year treatment period. the primary endpoint was not met, we believe that the data will We presented a total of 11 abstracts at ACR/ARHP, highlighting provide valuable insights. We will therefore further examine the data the momentum of our various clinical programs in immunology. We in an effort to better understand the results and intend to present presented other data of note on a Phase II post-hoc

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