Single Entity Report Merck Kgaa, Darmstadt, Germany
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ANNUAL FINANCIAL STATEMENTS 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. Table of Contents Annual Financial Statements Combined Annual Financial Management Report Statements 6 Fundamental Information about the 127 Balance Sheet as of December 31, 2019 Group 128 Income Statement for the period from January 1 to 6 The Group December 31, 2019 14 Strategy 129 Statement of Changes in Fixed Assets 21 Internal Management System 130 Notes as of December 31, 2019 27 Corporate Responsibility 133 Notes to the Balance Sheet 37 Research and Development 141 Notes to the Income Statement 49 People 145 Other Disclosures 57 Report on Economic Position 148 Members of the Executive Board of Merck KGaA, Darmstadt, Germany 57 Macroeconomic and Sector-Specific Environment 149 Members of the Supervisory Board of Merck KGaA, Darmstadt, Germany 60 Review of Forecast against Actual Business Developments 151 Disclosures in accordance with section 160 (1) no. 8 of the German Stock Corporation Act (AktG) 68 Course of Business and Economic Position 154 List of Shareholdings of Merck KGaA, Darmstadt, 68 Group Germany, as of December 31, 2019 79 Healthcare 178 Independent Auditor’s Report 85 Life Science 184 Responsibility Statement in accordance with secti- 90 Performance Materials on 264 (2) sentence 3 HGB and section 289 (1) 95 Corporate and Other sentence 5 HGB 96 Report on Risks and Opportunities 185 Report of the Supervisory Board 111 Report on Expected Developments 188 Financial Calendar 116 Report in accordance with section 315a (1) of the German Commercial Code (HGB) 118 Additional Information in accordance with the German Commercial Code (HGB) COMBINED MANAGEMENT REPORT 6 68 Fundamental Information about the Group Course of Business and Economic Position 6 68 The Group Group 14 79 Strategy Healthcare 21 85 Internal Management System Life Science 27 90 Corporate Responsibility Performance Materials 37 95 Research and Development Corporate and Other 49 96 People Report on Risks and Opportunities 57 111 Report on Economic Position Report on Expected Developments 57 116 Macroeconomic and Sector-Specific Report in accordance with section 315a (1) of Environment the German Commercial Code (HGB) 60 118 Review of Forecast against Actual Business Additional Information Developments in accordance with the German Commercial Code (HGB) 5 Management Report The management report of Merck KGaA, Darmstadt, Germany, has been combined with the Group management report. The combined management report is published in the 2019 Annual Report of the Group. The annual financial statements and the combined management report of the Group and Merck KGaA, Darmstadt, Germany, for 2019 are being filed with the electronic German Federal Gazette (elektronischer Bundesanzeiger) and are available on the website of the German company register. Fundamental Information about the The Fundamen- The Group Group Group tal Informa- tion about the Group Combined Management Report ___ Fundamental Information about the Group ___ The Group 136 Fundamental Information about the Group The Group We are a vibrant science and technology company. Science is at the heart of everything we do. It drives the discoveries we make and the technologies we create. We make a positive difference in the lives of millions of people every day. In Healthcare, we discover unique ways to treat some of the most challenging diseases, such as multiple sclerosis (MS) and cancer. Our Life Science experts develop tools and solutions, which are aimed at enabling scientists achieve breakthroughs even faster. And in Performance Materials, we develop science that sits inside technologies and changes the way we access and display information. Everything we do is fueled by our belief in science and technology as a force for good. A belief that has driven our work since 1668, and will continue to inspire us to find more joyful and sustainable ways to live. We are curious minds dedicated to human progress. We operate globally under our corporate brand. The only exceptions are Canada and the United States. In these countries, we operate as EMD Serono in the biopharmaceutical business, as MilliporeSigma in the life science business, and as EMD Performance Materials in the high-tech materials business. Apart from our three business sectors, our financial reporting presents five regions: Europe, North America, Asia-Pacific, Latin America, and the Middle East and Africa. As of December 31, 2019, we had 57,071 employees worldwide1 , which compares with 51,749 employees on December 31, 2018. Healthcare Our Healthcare business sector comprises the two businesses Biopharma and Allergopharma. In 2019, Healthcare generated 42%of Group sales and 40% of EBITDA pre (excluding Corporate and Other). Europe and North America generated 55% of Healthcare’s net sales in 2019. In recent years, we have steadily expanded our presence in growth markets. In 2019, Asia-Pacific and Latin America accounted for 38% of sales. Biopharma* Our Biopharma business discovers, develops, manufactures and markets innovative pharmaceutical and biological prescription drugs to treat cancer, MS, infertility, growth disorders, and certain cardiovascular and metabolic diseases. Biopharma is the larger of our Healthcare businesses and operates in four franchises: Oncology, Neurology & Immunology, Fertility, and General Medicine & Endocrinology. Our R&D pipeline positions us with a clear focus on becoming a global specialty innovator in oncology, immuno- oncology, and immunology including multiple sclerosis (MS). At the end of March 2019, Mavenclad® (cladribine tablets) was approved in the United States, the market with the greatest number of people living with MS. Mavenclad® was approved for the treatment of adults with relapsing-remitting MS (RRMS) and active secondary progressive MS (SPMS). Our cladribine tablets have been approved by the FDA as a treatment for RRMS and SPMS that provides two years of proven efficacy, with a maximum of 20 days of oral treatment during a two-year period. With U.S. approval, Mavenclad® is now approved in more than 70 countries, including those of the European Union, Australia, Canada, and Switzerland. 1 The Group also has employees at sites that are not fully consolidated subsidiaries. These figures refer to all people directly employed by the Group and therefore may deviate from figures in the financial section of this report. * The contents of this chapter or section are voluntary and therefore not audited. However, our auditor has read the text critically. Combined Management Report ___ Fundamental Information about the Group ___ The Group 147 We view Mavenclad® as a complementary oral treatment option in our MS product portfolio. Rebif® (interferon beta-1a), a disease-modifying drug used to treat relapsing forms of MS (RMS), is and remains a well-established therapy. Rebif® is registered in more than 90 countries worldwide. Interferon beta-1a has been proven to delay the progression of disability, reduce the frequency of relapses, and reduce magnetic resonance imaging (MRI) lesion activity and area. In September, we initiated two global pivotal Phase III trials of evobrutinib, an oral, highly selective Bruton’s tyrosine kinase (BTK) inhibitor in adult patients with RMS. Evobrutinib was developed within our own laboratories and further demonstrates our commitment to improving the lives of people with MS and other chronic progressive diseases (for further details see “Research & Development”). Erbitux® (cetuximab) remains the second best-selling drug in terms of revenue in the portfolio of our Biopharma business and is our flagship product in oncology. Treating more than 900,000 patients since authorization, the product is a standard of care for patients with epidermal growth factor receptor (EGFR)-expressing, RAS wildtype metastatic colorectal cancer (mCRC), as well as both recurrent and/or metastatic and locally advanced squamous cell carcinoma of the head and neck (SCCHN). We continue to invest in cetuximab and are committed to making it available to those patients it will benefit most. In September, Erbitux® obtained the approval of the National Medical Products Administration of China in mCRC. Together with Pfizer Inc., we are developing much-needed new treatment options for patients with hard-to-treat cancers. We have made key progress in this area, with regulatory approvals in more than 50 countries for our anti-PD-L1 antibody avelumab under the brand name Bavencio® . In May, we and our alliance partner Pfizer announced that the FDA had approved Bavencio® in combination with axitinib for the first-line treatment of patients with advanced renal cell carcinoma (RCC). In October, we and Pfizer reported that the European Commission (EC) had also approved Bavencio® in combination with axitinib for the first-line treatment of adult patients with advanced RCC. Bavencio® was initially granted two approvals in 2017 by the FDA for the treatment of adults and pediatric