Merck Kgaa

gentlemen welcome to the Merck investor and analyst conference call on first quarter 2025 as a reminder all participants will be in a listen-only mode I am now handing over to Florian Schrader head of investor relations who will lead you through this conference please go ahead sir thank you so much Heidi and a very warm welcome to this Merck q125 results call

My name is Florian Schreder. I'm the head of investor relations here at Merck. I'm delighted to be joined today by Belen Garrigio, our group CEO, as well as Helene von Röder, our group CFO. For the Q&A part of this call, we will also have Matthias Heinzel, CEO LifeScience, Jean-Charles Wirth, designated CEO LifeScience, Peter Günther, CEO Healthcare, Danny Barzohar, designated CEO Healthcare, as well as Kai Beckmann, CEO Electronics. In the first couple of minutes of this call, we would like to guide you through the key slides of the presentation. After that, we will be more than happy to take your questions. With this, I would now like to hand over to Belen to start.

Thank you, Florian, and welcome everybody from my side to our Q1 earnings call. I am now on slide number five of the presentation, starting with the highlights. First of all, you would agree with me that this quarter was characterized by a rapidly changing global economic landscape, to say the least. And we delivered very solidly, achieving profitable growth across our three business sectors in Q1. Organically, group revenues increased by 3%, and EBITDA P went up by 6%. Healthcare and life science showed the strongest organic sales growth at 3%, while electronic sales were up by 1%. Now, I would like to draw your attention to the highlight of the quarter, which is the remarkable progress in process solutions that is crossing to the double-digit growth level and delivering plus 11% in Q1, as the market conditions, mainly customer de-stocking, have been put behind. Order intake grew also very strongly, and book-to-bill was again comfortably above 1. Healthcare also delivered organic sales growth of 3%, driven by a strong performance of plus 11% in our CME portfolio, as well as mid to high single-digit growth of Herbitux and Mavenclad, respectively. With the recently announced acquisition of SpringWorks Therapeutics, we are securing the mid to long-term sustainability of our pharma pillar and positioning the pharma sector to accelerate growth immediately after closing. SpringWorks is fully aligned with the business and the M&A priorities of our healthcare sector, which is to continue to rely on external innovation via licensing primarily of later stage assets. Moving to electronics, it also showed a positive organic sales development in Q1. Once again, this was driven by the strong growth in semiconductor materials. At the same time, we saw some projects being pushed out further in our DS&S business as our customers are equally trying to manage the rapidly evolving business environment in which we operate. On the guidance for full year 2025, I want to remind you that we submitted a quantitative guidance for the first time already with our full year 2024 results back in March. Since then, we have gained more visibility on the macro, mainly FX and tariffs, And therefore, we are reflecting this development in our 2025 outlook. First, I want to let you know that around 80% of the adjustment to the absolute corridors is related to our assumptions on FX. Second, on the tariffs, it includes a scenario where this week's trade agreement between the U.S. and China is restricted to 90 days and no more. We have clearly proven our adaptability in this evolving macroeconomic environment already in Q1, and we are confident to achieve profitable organic growth in 2025. I will come back with more details on our assumptions for the guidance later. So let's move to slide number six for an overview of our performance by business sector. As you may see on the slide, organic sales growth in Q1 was plus 2.5%. Life science delivered organic sales growth of 2.5%, driven by stellar performance of process solutions. With 3.4% organic sales growth, healthcare was the largest contributor And within healthcare, our CM&E portfolio was the strongest franchise. Electronics grew slightly by 0.6 organically as our semi-business was up plus 2% driven by semi-materials. For the group, FX represented a slight tailwind of plus 0.4% on sales due to life science and electronics. together with a portfolio effect of plus 0.2% for the group in Q1, which is driven by the acquisition of Myros Bio and Unity SC, group sales increased by a total of 3.1% in the quarter. Regarding earnings, EBITDA pre amounted to 1.535 billion, growing more than twice as fast as organic sales, and delivering 5.8% growth compared to the same quarter of last year. FX also had a slight positive effect on EBITDA pre in the quarter, while the portfolio effect was slightly dilutive. With this, I would like to hand it over to Helene for a more detailed review of our financials.

Thank you very much, Belen, and a warm welcome also from my side from sunny Darmstadt. And with that, I'm now on slide eight for an overview of our key figures in the first quarter. I would like to emphasize that we had a solid start to 2025 in what is indeed a rapidly evolving economic environment. Net sales increased by 3.1% to $5.208 billion supported by the acquisitions of Myris Bio and Unity SC, while FX was still a slight tailwind in Q1. EBITDA pre was up by 5.6% to 1.535 billion euros. Importantly, all three business sectors contributed to EBITDA pre-growth, both on an absolute and an organic basis. FX was slightly, a slightly lower tailwind on EBITDA pre than on sales, while portfolio had a slightly dilutive effect on EBITDA pre. EPS pre increased by 2.9% to 2 euros and 12 per share. Operating cash flow decreased by 556 million, also compared against a higher base. The decline was mainly driven by an increase in receivables and inventories in anticipation of a changing tariff environment, higher bonus payments, and higher tax payments. Net financial debt decreased slightly compared with the end of December last year as operating cash flow was largely consumed by investing cash flow. Let me also briefly comment on our reported results. So I'm now on slide nine. EBIT was up by 8% year on year. This was higher than the increase in EBITDA pre as DNA increased at a smaller rate compared with EBITDA pre, while adjustments were lower than in Q1 last year. The financial results saw an adverse change of 18 million from minus 32 million to minus 50 million, which was mainly driven by higher interest expenses and lower results from financial investments. In general, please remember that our financial results consist of more than just the interest results. It also includes, for example, outcomes from financial investments, changes in our pension and other long-term provisions, as well as adjustments to the time value of the long-term incentives plan. The effective tax rate came in at 22.8%, which is at the upper end of our guidance range of 21 to 23%, and slightly above the effective tax rate of 22.2% in the year earlier period. The tax rate usually fluctuates over the quarters during the year. For example, Q4 is usually the lowest tax rate quarter for us, bringing down the average from the first nine months. In addition, please be aware that this year is a year of additional uncertainty with all the debates around tax. Reported EPS came in at €1.69. which represents an increase of 5.6% year on year. And with that, let's move on to the review by business sector, and I'm starting with life science on slide 10. Life science grew organically at 2.5% in Q1. As projected, this is driven by process solutions, which grew organically by 11.4% in the first quarter. The vast majority of our customers have started reorder, and we're now seeing our large pharma customers back to normal order and patterns. Consequently, order intake showed a very strong growth, again in Q125, and book-to-bill stayed comfortably above 1, at a similar level to Q4 of last year. Process solutions is carried by strong demand for consumables, which form more than 90% of our sales in this business segment. We have not seen pre-ordering effects in Q125. Now taking a closer look at science and lab solutions. Sales were down by minus 2.5% organically. U.S. policy changes are in particular affecting academic and government lab spending amid a still cautious pharma research spending environment as pharmaceutical customers are still prioritizing late-stage development projects. In addition, China has remained a challenging market for science and lab solutions. And turning to life science services, our third and smallest business within life science sales were down by 6.2% organically, mainly driven by our CDMO activities as new project stats were impacted by funding constraints and project phasing was unfavorable. EBITDA pre was up by 3.1% organically in Q1. While our EBITDA pre margin increased on an organic basis, FX and portfolio FX were slightly dilutive. I'm now on slide 11 for an overview of the performance of our healthcare business sector. Healthcare delivered solid organic sales growth of plus 3.4% in Q1, well in line with our full year guidance, which we gave in March. By franchise, our CME portfolio was the largest contributor to growth, up 10.6% organically against an easy comp. We saw double-digit organic growth across all therapeutic areas, supported by some favorable phasing. Oncology was down by minus 1.9% organically in Q1. While Bivenci declined in the mid-teens percentage range amid increasing competition, this was largely offset by a solid growth in Erbotox, which was up by 6.2% organically. All key regions contributed to the growth of Arbitrax, with Europe and China up in the double-digit percentage range. Our NNI franchise declined by minus 3.7% organically in Q1. Declines of Rebif in line with the interferon market were largely offset by strong growth of Marvinclad, which was up 9.2% organically. Fertility was roughly stable in Q1, despite still high comps reflecting competitive stock-offs. Looking at our pipeline, for Pimicotinib, we announced that we exercised the option with Abisko for its commercialization in the U.S. and the rest of the world. We now hold commercialization rights for Pimicotinib worldwide. For M9140, our CCAM5 ADC and Phase 1B expansion, we have seen an encouraging activity so far. And we will present the data at ESCO 2025. The robust organic cells growth in Q1, in combination with temporarily lower R&D spend as projected, helped us to achieve 11.7% organic growth in EBITDA pre. Overall, EBITDA pre amounted to 796 million in Q1, resulting in a margin of 37.6%, which is an increase of 300 basis points above Q1 24. On the further evolution of our R&D spending, let me say the following. We do expect a gradual increase of R&D costs over the coming quarters, both in absolute terms and as a percentage of sales. Moving on to electronics on slide 12. Organically, sales increased slightly by 0.6% in Q1. The electronics sector showed organic growth thanks to the strong demand in our semiconductor materials business driven by growth in AI and advanced node technologies in particular. Bear in mind, semiconductor materials is well over 50% of the sales in our electronics business sector, and it is growing. The strong organic sales growth in semiconductor materials helped semiconductor solutions to grow at 2% organically amid a low double-digit percentage decline in our DSMS business. Customer projects have been pushed out further as our customers tried to manage a very dynamic market environment. Our optronics business was organically flat in Q1 with some stabilization in the liquid crystal market. Surface Solutions was down 6.9% organically. The completion of the divestment is on track for the second half of this year. The EBITDA pre-margin went up by 30 basis points year-on-year to 25.8% thanks to cost efficiency, positive mix effects, partially offset by startup costs on new sites. For the further margin evolution during 2025, please note that volume growth would be the most important margin driver. And, as we also have said repeatedly, We continue to be convinced of the long-term secular growth of semiconductors and therefore sustain a high level of R&D activities and are continuing with our capacity expansion in that fast-growing segment. Before handing back to Belen, let me also briefly comment on our balance sheet and cash flow statement. As you can see on slide 13, our balance sheet decreased by 2.2 billion euros compared with the end of December 2024. Now taking a closer look at the asset side, cash and cash equivalents went down by 1 billion euros from 2.5 billion euros at the end of December 2024 due to the repayment of the US dollar bond, which took place in March of this year. Inventories were stable while receivables went up by 400 million euros following a quarter of strong cash collection at the end of last year. Property, plant, and equipment decreased slightly due mainly to FX translation differences. Intangible assets decreased by 800 million due to FX effects and DNA. And lastly, other assets were down by 100 million euros due mainly to divestment and revaluation effects. Looking at the liability side, financial debt decreased by 1.6 billion euro, which largely reflects the repayment of the US dollar bond. Pension provisions were down, driven by actuarial gains. Payables decreased from 3.1 billion to 3.0 billion as we saw declines in current payables across our three business sectors. Other liabilities were around flat, and net equity decreased slightly by 100 million euros as the increase in retained earnings was more than offset by FX differences, mainly resulting from the weakening US dollar. In summary, our equity ratio strengthened further from 58% at the end of December 24 to 61% at the end of Q1. Now turning to cash flow on slide 14. Operating cash flow went down from 1.035 billion euros in Q1 of last year to 556 million in Q1 25, despite an increase in profit after tax. That was mainly due to changes in other assets and liabilities in turn, driven by higher bonus payers and taxes in the quarter, as well as an increase in working capital. The increase in working capital was mainly due to an increase in trade receivables, reflecting the phasing after a particularly strong quarter of cash collection in Q4 24, and compared with a quarter of tight receivable management in Q1 of last year. Cash out for investing activities decreased, primarily due to lower payments for investments in intangible assets compared to the same quarter of last year, which were related to healthcare investments at that time, as well as lower capex on property, plant, and equipment. Last but not least, the difference in financing cash flow can be explained by the repayment of the aforementioned U.S. dollar bond in Q1 this year. And with that, let me hand back to Belen for the outlook.

Thank you, Helene. Let us now take a closer look at our guidance on slide number 16. So back to my initial comments on currency and tariffs. We are adjusting our 2025 target corridors for the group, now expecting $20.9 billion to $22.4 billion in sales and a beta pre in the range of $5.8 to $6.4 billion. The majority of this adjustment, I mentioned already 80%, is the result of our assumptions regarding currency movements, which we now anticipate will be a headwind for both sales and EBITDA pre, particularly a weak U.S. dollar. We forecast that FX will have an impact of minus 3 to 0 on revenues and minus 5 to minus 2 on EBITDA pre. Organically, we have slightly widened the corridor for sales, and now we see plus 2 to plus 6 growth on the top line, and this reflects The current volatility primarily associated with a very dynamic evolution of the tariff environment. Keeping the bandwidth, our organic growth guidance on EBITDA-3 is therefore slightly adjusted to a corridor of plus 2 to plus 7. As usual, at this time of the year, we are issuing our first TPS-3 guidance, expecting it to be in a range of 7.90 to 9.00. I repeat, our guidance considers the impact of tariffs including our mitigation measures and integrates the recently announced agreement between the U.S. and China only on a duration of three months. Looking at our three business sectors specifically, For healthcare, the policy situation is a moving target, and we are well positioned. As you can imagine, we are working closely with trade associations in the US and in Europe to improve the chances to land an acceptable deal with governments. For life science, we have developed both proactive and reactive action plans, and that includes implementing a temporary surcharge in selected markets. While our mitigation measures are designed to protect our profit, profit margins are temporarily affected to a limited extent. In electronics, our goal is to mitigate the vast majority of the potential tariff impact. Through our well-known Level Up program, we invested in localization and supply chain resiliency And this largely balances the tariff situation. While we have reflected the remaining risk, which we quantify as low double-digit Euro million cost, we are confident that we can mitigate the remaining part, mostly via supply chain optimizations. We include this risk at the extended bottom end of our EBITDA pre-organic guidance. while at the midpoint we reflect only minor tariff costs. Last but not least, rest assured that we are prepared to act on our cost structure if the macro pressure further increases. For some additional callers by business sector, please go with me to slide number 17. Starting with life science, we are slightly narrowing the organic sales growth guidance corridor to plus two to plus six for 2025. As in particular, U.S. policy changes affecting our SLS business make it unlikely that the previous high end of the guidance will be reached. We now expect the beta-3 to show an organic development of between plus one and plus seven. which also includes the net impact of tariffs, including our mitigation measures. We expect those to have a slightly margin diluted effect. Moving into healthcare, we are raising our guidance for organic growth and sales to plus six, and the main drivers are the continued strong performance of our CM&E portfolio coupled with a solid performance of HB2s and a strong performance of Mavenclad. Our EBITDA pre-organic growth guidance is increasing to plus 4 to plus 10, between plus 4 and plus 10, driven by leverage growth paired with cost discipline in the value of pharma business sector. For electronics, we are widening our forecast range for organic sales to plus 1 to plus six, and for the organic development of EBITDA pre, from minus three percent to plus eight percent. We once again had a strong quarter in semiconductor materials in Q1, but as mentioned already a couple of times, customer projects have been pushed out a bit further. A tariff-related economic recession is not included in our guidance. I would like to conclude by emphasizing that Q1 was a very solid start into the year in a challenging macroeconomic environment. And we remain confident to deliver profitable organic growth also in 2025. And with that, we will be very happy to take your questions. Thank you.

Thank you, Belen. And Heidi, we are ready to take the first question, please. Thank you.

We will now begin our question and answer session. If you have a question for our speakers, please dial star 11 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. And your first question comes from the line of Richard Vosser from JP Morgan. Please go ahead. Your line is open.

Hi. Thanks for taking my questions. Two, please. Firstly, on SLS, could you talk about the performance you see for that division in Q2 and the remainder of the year, given impacts from NIH funding would have only hit a little bit in Q1, and how you see the general weakness in the R&D budgets continuing? Could we see a sequential decline in Q2 and maybe also how we should think about China in relation to that because of the tariff, the reduced tariff window. Do you expect more sales coming in from that region in Q2 because of the window? And also, given the NIH budget cuts for 26 that are muted, how should we think about the longer term there? That would be super helpful. And then a second question, please. I think I'll also go in life science. Just process solutions, obviously really strong in Q1. Just wondering on how you've seen the development of the orders for that business in April and early May. Should we be anticipating or are thinking about further sequential growth given the environment that pharma finds itself in. Thanks very much.

Thank you, Richard. And by the way, it's more than one question, so Jean-Charles speaking. Let me try to answer the first one related to SLS performance looking forward, and I will try to address also your question on China as well on NIH. So let's put it this way. Overall, for SLS, we remain confident in the mid-term financial ambition. That said, as mentioned by Elena, we are facing dynamic macroeconomic challenges and in a very volatile market condition, which has become more difficult. So what you should expect for SLS, I would say you should expect relative organic growth to be better in the second half of the year versus the first half. And as a hint, we are aiming to have an exit rate, which is getting us towards the mid-term guidance.

Hey, Richard, it's Mathias. Let me handle the PS question. Obviously, we have been building very strong momentum in PS, and pretty much it's unfolding as we predicted. The order book remains very strong. We continue to see very strong order intake. And the book-to-bear ratio, as mentioned before, I believe, stayed at a very, very high rate. So we are very comfortable about the momentum and that this momentum continues throughout the year. And we're really confident that PS will be on its path towards the midterm guidance, as we mentioned before.

Thank you.

Thank you. We will take our next question. Your next question comes from the line of Harry Sefton from UBS. Please go ahead. Your line is open.

Brilliant. Thank you very much for taking my questions. So the first one on the process solutions performance, we've seen an international trade data, the big spike in farmer imports in the US. You mentioned you haven't seen pre-ordering. What makes you confident that this imports into the US hasn't contributed to what you've noted as a very strong order intake in the quarter. And then maybe on a second question, on the Springworks deal, can you outline what to expect in terms of cost integration here, what you expect in terms of synergies, and what we should be expecting in terms of one-time deal costs? Thank you.

Yeah, on your first question, obviously we are having a very, very strong focus after the dynamics of the last several years, right, with stocking up and destocking to monitor and really keep a close eye on the underlying business trends. And that's on a customer level, on a regional level, and we are very confident to really confirm that we haven't seen any material pre-ordering. That doesn't mean that one single customer could have done something, but there's nothing material They're very closely monitoring customers in discussions with them, and the order intake momentum is really broad-based across all regions, across all customer segments. So that gives us a lot of confidence that what we see is real underlying demand picking up as we have kind of expected.

Thank you.

I hope you can hear me better now. Regarding the SpringWorks question, we're talking about transaction and integration costs. As per your question, we expect the transaction to be accretive by 2027. Just as a broad statement, we expect the transaction and integration costs of $150 million each. The majority of the transaction costs will be incurred Still this year, in 2025, integration costs will be spread over 2025 and 2027. Regarding synergies, the purpose behind this very exciting deal for us is to unlock potential value still in the United States and mainly outside of the U.S. for these two products. So we are not expecting here major cost synergies, just to frame it like that.

Thank you. We will take our next question. Your next question comes from the line of Sachin Jain from Bank of America. Please go ahead. Your line is open.

Hi there. A couple of questions, please. So firstly, for Belen, in the end of your introduction, you talked about healthcare and the industry working towards an acceptable deal. I'm just wondering if you're willing to give some loose colour on what the industry has agreed is to be potentially acceptable on tariffs. Second question on life scheme margins. Obviously, the guide is now flat-ish versus prior commentary for slight improvement this year. Where you could just split out how much of that is SLS impact, slight slowdown versus tariffs. Now, I could sneak in one other just on healthcare. CME growth trends, you're talking sustainable. The chart appendix shows accelerating growth trends. So maybe you could just give us some color on a CME growth outlook from here. And maybe I could just take this opportunity to thank both Peter and Matthias for their interactions over the years. I think this is your last call. I wish you all the best for the future. Thank you.

Hello. I just want to make sure that I understood your question. Is that question related to the acquisition of SpringWorks and the acceptable level of

No, apologies. I think you said in your commentary on tariffs, you're well positioned and you're confident the industry can move towards an acceptable deal with the administration. I just wanted you to give some color on that.

Now I understand better. Of course, I mean, we have taken mitigation measures in order to be... dealing with potential implementation of studies associated to medicines, and we are not expecting any in the short term in 2025.

Sorry, Belen, I might just try and rephrase the question. The question was, you said, as an industry, you're working towards an acceptable deal with the administration. I wonder if you'd give some color on how the industry would view a tariff deal that the industry would view as acceptable?

I think this is a more difficult question to answer. I mean, we are absolutely committed to continue and to contribute very actively to the discussions that we have through the trade associations to make sure that we shape the environment in the U.S. as an innovation driven environment and you know on several topics not only on tariffs but also on the most favored nation discussions which you know we believe have different angles right and it will not be that easy to implement, but for further details, I can call on Peter, who is on the front lines of the industry associations.

Yeah, thanks, Belen. Hi, Sachin. I think it's, of course, a lot of elements in the mix and actually a moving target, but I think it's fair to say that when you listened in to President Trump last Monday, I think it was, that he singled out a couple of things like for example the middleman and you know now in the US we have you know 50 cents to the dollar goes to the middleman. I think he also singled out the fact that of course especially European prices have been historically inadequate for innovation and that is of course something we also work on as an industry to to really ensure that we get adequate prices for our innovation in jurisdictions with comparable GDP per capita as the U.S. So I think there's a lot of things ongoing. And then, of course, tariffs, as you know, a certain number of announcements have been done by pharmaceutical companies or investments in the U.S., so we're also looking at those elements. But I think all in all, we are well-equipped and well-prepared to... to navigate this complex environment.

We had a technical issue to understand your two other questions on SLS and CME. Could you be so kind to just repeat again? Thank you.

Apologies. I'll keep it short. CME, you talked about growth trend sustainable. The chart in the appendix shows CME growth actually accelerating, so just any color on whether acceleration is sustainable. And then the question for Matthias on life scheme margins was the guidance is now flattish. If you could split out the tariff impact within that margin guidance would be great. Thank you.

So, Sachin, it's Danny regarding CM&E. So, a little bit of more color on that. In the first quarter, CM&E delivered, as you saw, double-digit growth with actually all therapeutic areas contributing to that growth. It's a multi-region franchise. So by region, Middle East, Africa was the main growth driver, supported by, to Helena's comment, very favorable phasing. We can touch that later. Followed by China with double-digit growth and Europe with mid-single-digit growth. And all key brands delivered double-digit organic growth. We're talking about Glucophage, Concord, Euthyroxys, and Sizen. The first three, Glucophage, Concor, and Euthyrox, were more affected by phasing. Sizen contributed actually double-digit growth, 19% organically, driven by strong performance and supported by competitor stock-outs that we leveraged on. Regarding, specifically regarding the phasing, so you should expect this phasing to to reverse during the next quarter, but I would try to quantify it as maybe two or three percentage points still committed to the very strong mid-term guidance that we provided at mid-single digital growth.

Hey, Tarjan, on your question regarding tariffs and impact on margin, obviously the situation, as we all observed, is very dynamic, and we are managing our mitigation action to adjust accordingly. In our guidance, we've reflected a slightly positive impact from the tariffs as we know them as of today, slightly positive on the top line and a slightly dilutive effect on the margin for the full year.

Thank you.

Thank you. We will take our next question. Your next question comes from the line of James Quigley from Goldman Sachs. Please go ahead. Your line is open.

Great, thank you for taking my questions. I have two, please. So the first is a follow-up on the SLS business. And Jean-Charles, you mentioned that you're expecting the growth to return in the second half. But what data points are you seeing and what can you point to that gives you confidence in that? And linked to that, in terms of pharma R&D spending, have you had any conversations, any data points, or anything to suggest that pharma will start to reinvest in early-stage development to help support that growth? And the second question is for Danny. Benen mentioned that the CCAM5 had encouraging data. I appreciate you're going to show some more data at ASCO, but can you give us a little preview about which aspects of the data you found most encouraging? What could be the next steps in development here and how quickly you can move? And we've seen CCAM5 disappointment in lung cancer with Sanofi, but do you have any plans to extend the program? Thank you.

Hey, James. Thanks for the question. First of all, talking about SLS, I would like to take the opportunity to mention that SLS has a very large portfolio. We go to multi-channel approach, so we have a very strong footprint. Talking about what do we expect, as mentioned by Elena, we are facing currently some geopolitical, economic, difficult environments and challenges. And for sure, TAIF drives, I would say, uncertainty behavior in some of our customers. The second key point I would like to highlight is the U.S. situation with the public funding, where we see also an impact. Then China remains muted. And last but not least, we mentioned that our pharma customers remain cautious in terms of investment and spending on early-stage R&D. We expect that overall the situation will ease a bit

James, it's Daniel regarding the CCAM5 question. So you're absolutely right. We are quite excited about this ADC. The target is CCAM5. CCAM5 is a well-known target expressed on a variety of gastrointestinal tumors. The leading of them is colorectal cancer, where it's actually expressed in more than 95% of the patients. And here we used in this ADC with our proprietary linker payload technology with a cleavable linker where the warhead is a topoisomerase I inhibitor. And as you know, colorectal cancer like other GI tumors are rather sensitive to topoisomerase I. This is the basis for the arenotecan used heavily in these populations. So the target is known and the chemotherapy part is known. You referred to the Sanofi compound. The Sanofi compound was, yes, with the same target in lung, slightly less expression of CCAM5 in lung, but also different payloads. It was an anti-tubulin payload, so it's very, very hard to compare different payloads, different tumors. The data that we are going to share at ASCO is actually a dose optimization study. in colorectal cancer where we tested two doses after we came up with a very encouraging dose from a phase 1A study that we presented last ASCO. It was good enough, I would say, ironically, to be the best of ASCO in heavily pretreated patients showing ORRs of 10%. This is a lot in fourth and fifth line colorectal cancer. So here we will show in the upcoming ASCO, we will show data in third line colorectal cancer, and the data is embargoed, but what I can say is that this will be well above 10%. And still with what seems to be a very encouraging safety profile, no lung toxicity, no eye toxicity known with these ADCs, so I would stay tuned to that.

Perfect. Thank you. And best of luck again to Peter and to Matthias. Thank you.

Thank you. We will take our next question. Your next question comes from the line of Falco Frederic from Deutsche Bank. Please go ahead. Your line is open.

Thank you. My first question is on Beventio and whether the Q1 performance is a good indication for what we should expect for the full year from this medication. My second question is on the DSNS business and whether you expect this one to recover throughout the year. And then thirdly, on process solutions for Matthias, I guess the destocking is now finally behind. How close to a normal environment do you witness at the moment? Thank you.

Thank you so much for the question. I'll start with Bavencio. And so just zooming out a little bit. For Bavencio, actually the best surrogate for the dynamics in the new patients is the share of platinum initiations, which seems to have stabilized in the United States around 25%, approximately a year post the approval of EV Pembroke. We are seeing similar dynamics play out in the first two European countries, mainly Germany and France with an extended access program, but also in Japan. And we actually expect a similar stabilization share later this year and even through 2026. Now, when it comes to sales, we have started seeing the first signs, very, very first signs of stabilization in the U.S., It's still very volatile in the EU and Japan. It will take more time to stabilize as a result of the ongoing platinum share dynamics and the reimbursement also of EV Pembro across the markets in different time points. You also need to remember that the sales themselves take time to stabilize because they start being impacted six months after the platinum stabilization. So what do we expect moving forward? The Bavencio regimen is clearly going to prevail because we know that from key opinion leaders that certain patient profiles are better fit for this regimen. But we expect Bavencio to decline this year pretty much at the ballpark of what you saw in the first quarter. You saw 15%. It will be very much in that range. And then moving forward to 2026 and onwards, it will stabilize.

Falco, this is Kai speaking. Thanks for the DSMS question. Just bear in mind to compare the current performance, bear in mind that we had since the acquisition of Zoom, the integration 2020 to last year, we had 17% CAGR in that business. That was quite successful with peak years in 23 and second record year in 24. So we're coming from a very high base Currently, the performance has to be seen on the backdrop of a minus 21% fab construction index. So if we take external KPIs for our construction, our project business. And on the other hand, we support our materials business with novel equipment specifically for new technologies by advanced semiconductors. And in these areas, we see quite good performance. So it's a combination of two different factors. It's only one-fifth of the semiconductor solutions business, and semiconductor solutions overall, of course, is the majority of our electronics business, but it's only one-fifth of semiconductor solutions.

Hello, Falco. On your question regarding PS and BioP, look, overall, I mean, we are close to normal, right? Very robust underlying demand. We have seen that demand building over the last several quarters. We see that in our growth rate and now with the 11% in PS. So from an underlying demand standpoint in the industry, we are basically close to normal. Obviously, the additional effect is now the whole tariff situation and the impact it could have on demand patterns, right? That's why we're watching that very carefully. For the question before, are there any demand movings? movements, and that's what we monitor. So that's the only, I would say, still a watch out, but from an overall demand perspective in the industry, very strong, very robust.

Thank you.

Thank you. We will take our next question. Your next question comes from the line of Charles Pittman-King from Barclays. Please go ahead. Your line is open.

Hi, thank you very much for taking my questions. Um, just firstly on the LSS business, um, just speaking, if you can please give us a little bit more detail around the RFPs in this area, kind of noted muted demand, but I know that peers in the CDMO space are kind of noting a bit of a lag between these, um, US policy decisions and actually seeing an impact on our businesses. So, you know, what, what is the expected lag time between policy evolution and using that in your discussions? and also just as an extension of the LSS business, and apologies for any ignorance, but do you have any, what is your US underused capacity that could potentially be benefiting from tariffs going forward? And then just a second question on SLS, on the kind of muted China dynamics within the stable APAC region. I was wondering if you could just give us a little bit more insight into how you see this region developing over the course of this year, specifically in relation to stimulus efforts that were kind of put in place last year, obvious offset by any kind of tariff overhangs. Thanks very much.

Yeah, hi, it's Mathias. Let me handle the first question on LSS, and maybe it's important just to size it. So overall, LSS is about 7% of the total life science business, and then within that we have two parts. We obviously have a testing business, which is about 60%, and a bit more than 40% is our CDMO business. So, total CDMO S% of total life size is in the 3-3.5% range. It's a startup, right? I mean, we are clearly in novel modalities where we know we depend on the success of our customers. The ADC business is running very strongly. MRNA viral vectors heavily depending on the biotech funding. Obviously, there we see quite a lot of volatility. And obviously, that leads to some underutilized capacity, which I think where your question is going. We need to see how that unfolds in terms of, yeah, in this whole tariff situation. Obviously, that could create quite some opportunities. I think it's too early to say these are the exact concrete implication and results, but nevertheless, having high opportunities call it high tech, right, production facilities for complicated normal modalities provides an opportunity and obviously we'll see how our pharma companies and customers will deal with that but we're certainly ready to serve.

Talking about SLS in APAC, Jean-Charles speaking. I mean, when you peel the onion, you have, of course, as we said earlier, China, where the market is muted, and you have the rest of the region without going into much detail, Japan, Korea, India, and so forth. I would say in the other region, excluding China, we are executing according to plan.

Thank you.

Thank you. We will take our next question. Your next question comes from the line of Oliver Metzger from OderBHF. Please go ahead. Your line is open.

Good afternoon. Thanks for taking my questions. The first one is on the life science guides. So you lowered your upper end of the organic growth guides. And I fully get your comment about reflecting the lower SLS dynamics. Simultaneously, the standard PS and process solutions was definitely significantly better than expected. And I'm wondering, both businesses have a similar size. And for me, it looks like that the PS dynamic was definitely better from a relative perspective those expectations versus the SLS underperformance and it would be great to hear your thoughts about why you eliminate the upper end right now despite in the mix it doesn't look worse then it's also about the in process solutions can you make a quick comment on the sequential order element i'm i haven't got this and the last point is also very quick comment on what do you see regarding the equipment momentum is where a normalization scene thank you

On the guidance, very briefly, the reason why we have lowered the upper end is strictly related to SLS US. Charles, do you want to comment?

Yes, sure, Belen. First of all, we don't guide at business unit level, but between the upper and lower case, you should assume that we may see a few drivers which would impact the upper end. and lowercase, i.e., the trajectory of the bioprocessing recovery market. And as mentioned by Belen, we are seeing some weaker, stronger macroeconomic environments which may impact SLS. And finally, the third big driver should be around China, the market development in China.

Yeah, on your PS question, Look, as I mentioned before, we continue to see a very strong order book, total size of the order book, very strong order intake. That means the book-to-bill ratio remains, as we said before, comfortably high, and as an implication, also the order intake in absolute terms remains high, and between Q4, which was an extraordinarily strong quarter, pretty much on a similar level in absolute terms. And that mostly also, I think, I'm not sure whether you also wanted to get there, it's highly driven by consumable sales, right? I think your question was then about equipment momentum. By and large, 90% plus in our business is consumables. That is driving a lot of the order intake momentum building in PS, while at the same time, we also see a similar trend in equipment.

Okay, that's helpful. Thank you.

Thank you. We will take our next question. Your next question comes from the line of Dylan Van Heeften from Stifel. Please go ahead. Your line is open.

Hi, guys. Thanks for taking my questions. So just wanted to follow up, firstly, just on Bivencio versus PASF-Katruta. So earlier when the PASF data hit, there was this message that, you know, certainly if you look at drug sequencing, TOS, TOCS, of MCO's protocol looks better, but then if we're seeing it also land in Europe and Japan where cost and tox is a bigger item, it looks like, you know, I just wanted to ask if you guys think that after this 1Q print, you know, has your stance changed materially in regards to, you know, the momentum you can get with prescribers with this argument? Yeah, I'll start then, and then I have a follow-up on electronics.

I hope that I've answered the question correctly.

You're asking whether the momentum in Japan and Europe will be similar to the one in the U.S.?

It's more like when you guys presented the Bivencio versus Tadsov debate, it was more about, you know, there were certain benefits to the Bivencio protocol and it sounds or it looks like there's not that much at least prescribers are not really responding to that argumentation. Should we, you know, imagine that that comes back at some point or have you guys also internally reevaluated this argumentation?

So, okay, I'll give it a try. I hope that I got the question correctly. So what we saw when Evie Tembro came in, you know, they came out with what seems to be very strong data of an ADC plus a PTL1 These are two drugs that also from a reimbursement perspective are not trivial. And what we saw is, you know, from their perspective, very good market uptake in the U.S., actually declining the shares of platinum initiations, which is the first sign for maintenance treatment with Beventio to the levels of around 25% of the eligible patients. We see similar dynamics, we see it being replicated in Europe, in the first countries in Europe, as well as in Japan. At the beginning we thought that there would be differences between geographies, but it seems that it is stabilizing around these shares in general. It also seems that there are certain populations and the medical community has started more than just talking about it, that are more eligible for therapy, for treatment with Babenco following cisplatinum initiation. You are talking, you know, when we're talking about metastatic bladder, these are relatively old patients. They are very fragile. The toxicity with the EV PEMBRO, particularly the EV part, is not always trivial. Patients with local disease or more localized disease, lymph nodes only, may benefit more from Bavencio maintenance, but this is also only a fracture of the population. So as I said before, we believe that the regimen will prevail. Of course, not at the levels that were in 2024, the peak year, but it will stabilize along the years.

Awesome. Thank you. And just maybe just one follow up on the electronics widened range. So if we look at the fiscals, you know, there was already some weakness in the market at the time. And we've seen some of the projects already soften over fiscal year 24. So maybe to you, Kai, like has to have things really worsened dramatically. And is this really behind especially the widened organic EBITDA guide? Or is there also sort of a mixed impact we should be thinking about?

I did not understand the question fully, but let me try to answer it. On the top end of the guidance, the top line guidance is affected by the phasing of the project. That's the impact on the sales guidance. While on the EBITDA guidance, we see, of course, in addition, the impact of the tariffs marking the lower end of the guidance, the risk of the tariffs is embedded here. Just understand that for the sales development into the rest of the year, we are coming from five consecutive quarters of low-teens growth in the materials business, and the outlook here for the materials business is unchanged. So there's no transitions happening, technology changes happen, and so we don't see anything changing from our assumptions that we had earlier this year on the materials business. The only change that we were asking for is the phasing of the project.

Excellent. Thanks so much, and wishing you the best, Peter and Matthias.

Thank you. We will take our next question. Your next question comes from the line of Peter from BNP Paribas. Please go ahead. Your line is open.

Yeah, thanks. It's Peter here from BNP. Just three very quick ones, please. Belen, the pharma industry has been keen recently to highlight that the price differentials in U.S. government channels to Europe are more like 20% to 30%. So is this the sort of magnitude of price impact that you think about that one might need to consider on the back of the recent executive orders? Secondly, very quickly, With PBMs being brought into the debate, are you at all concerned that efforts to lower prices in government channels spills into the commercial book of business? And then switching to Peter, please, just on Europe. Farmer I know met with the president of the European Commission recently, and that meeting has been described to me by some of the CEOs who are present there as pretty disappointing. So you can't help but remain sceptical. European governments are going to suddenly be willing to pay more for innovation. So I'd love to hear if you have interactions that give you more confidence or do you push back to my supposition that you might indeed be willing to pay more for innovation and raise drug prices. Thank you.

Hi, Peter Belen here. Listen, I already commented a bit before on the way we are looking at the US. We believe, first of all, that the U.S. market will stay highly attractive, right? In terms of the discussions around prices, and as Peter mentioned, the most favored nations or equivalent to the reference price system in the U.S. will be complex to implement, first of all, and obviously it takes different dimensions because, you know, President Trump has been for the first time talking about PBMs, so the middleman, and keep in mind that as an average, PBMs take 50% of the price burden, right? And therefore, this is going to be something that we will continuously monitor and follow and contribute to building the debate and to definitely preserve the attractiveness of the U.S. market. By the way, if you remember former discussions related to our U.S. presence, we have a low exposure in the U.S. right, because in healthcare in particular, in healthcare, it's only 20% of our global business, so we are quite undersposed versus peers, and at the same time, and it's a big challenge that we are trying to address through inorganic moves like the recent acquisition of Springworks. So, we are not concerned with SpringWorks because we have included all different scenarios that you can possibly think of. We have evaluated the potential impact of the environment and we feel confident that our business case remains exactly as we have communicated, very promising and attractive. I think on Europe, you know. believing that the European governments are going to be raising prices, I mean, it's a good, let's say, unrealistic approach. It's a long shot. You know, as well as I do, the European environment, every country has their own reinvestment and pricing system, and I don't believe that this is going to change in the short term. But I don't know whether Peter wants to add anything and share some additional thoughts.

Well, obviously, I think it's not an easy path forward to somehow equalize or harmonize prices. You have to also try to compare apples to apples. First of all, you have to look at the government-administered prices in the U.S. and not the commercial plants administered prices in the U.S. with what is de facto government-administered prices in Europe. So that's the first thing I would say. The second, again, if you would take out the $0.50 to the middleman, and then compare US and European prices, of course, there would be already a significant degree of convergence. And you may have also seen, Peter, on last Monday, that there was a specific ask to HHS to look at prices direct to consumer or direct to patients, so to try to cut out, indeed, those middlemen. So, again, as I said earlier, there's a lot of moving pieces, but I fundamentally believe that... perhaps not immediately, but perhaps mid-term, that countries with comparable GDPs should also contribute to rewarding innovation and therefore also allowing further R&D. So I think it would be not easy, but a healthy ambition, I think. Thank you, and good luck.

Thank you. We will take our next question. And the question comes from the line of Simon Baker from Redburn Atlantic. Please go ahead, your line is open.

Thank you for taking my questions too, if I may please. Firstly, going back to SLS, I wonder if you could give us an idea of the relative contribution of weakness in academia and government versus the pharma commercial side of SLS. And also, presumably, At some point, strong performance by process solutions will lead to increased earlier activity. So I'm just wondering, is process a reasonable leading indicator of SLS? And if so, on what time frame? And then secondly, on pharma, we've had another tidget termination this week from GSK. So I wonder if you could just update us on the confidence in your TIGIT antibody and any points of differentiation that you would cite for that molecule. Thanks so much.

Jean-Charles speaking. Thanks for the question. So let's start with LSLS. Great point, by the way. NIH public funding weight for RAPI has an impact on academia, and we talk about RAPI has 10% of the review of SLS to answer the first question. And I would like again to echo that we are facing some changes linked to the public funding in the U.S., but also we are seeing some pharma customers being cautious on early-stage errand spending, and China is still muted, so it's a wall. Talking about the PS performance quickly, as mentioned by Mathias, we are confident in our current order intake and current business trend we are seeing in the market. But I would like also to mention that we need to keep in mind that the year-over-year comparison, H1 versus H2, will be higher. We have a higher base. And last but not least, I would like again to echo Mathias saying that The destocking is somewhat behind us. We are looking at normalization, and we continue to expect an organic growth in PS, which will be toward our mid-year, mid-term growth ambition for the full year.

It's Danny regarding the digit question. So you're absolutely right. There are many anti-digit antibodies and the field has not seen, I would say, tons of success with also the recent data released by GSK a couple of days ago. Part of these antitigets have a silent SC component, others don't. This is a point, this is pretty much the only point of differentiated. Our antitiget belongs to the family that has, might contribute to a better immune response in terms of ADCC immune response on the cancer cell. But to cut a long story short, we are assessing our antitiget antibody in a single study called the UC Medley. This is a study that combines three different compounds. One of them is our anti-TGIT on top of Bavencio in the same maintenance, first line maintenance in metastatic bladder cancer. And actually, the interim results of this study, there are three combinations there, one with the TGIT, the other one with the TRODELVI, and the third one with the Nectar's IL-15 compound. The interim results from this study will be presented at ESCO in a couple of weeks, so we'll need to be patient for there. But beyond that, there are no activities on digital and there won't be.

Thanks very much.

Thank you. We will take our next question. Your next question comes from the line of Rajesh Kumar from HSBC. Please go ahead. Your line is open.

Hi, good afternoon. Two, if I may. First on electronics. Do you think you've captured any tariff of cyclical risks in your electronics guidance appropriately, especially in your growth assumptions, i.e., if there was, you know, the continued weakness in the semi-cycle currently extends further? Does the lower end of your guidance anticipate that? That's the first question. And second, on process solutions, I appreciate orders are coming through. Inventory levels are not a headwind. What are the second order impacts from biotech funding if this drug pricing regime was to come through. Potentially, quite a few early-stage biotech projects might not go through or be feasible, so investment in that space could go down, and that could have an impact. Alternatively, you also might see CapEx move to the U.S., so if you could talk through what are the moving parts there, you have factored in your thinking about the macro environment in your process solutions outlook. That would be very helpful.

Thank you. Thanks for the opportunity to clarify the factors of our sales guidance in electronics. We did not include the session scenario in our guidance. That would be outside. Nobody has any data for that at this point in time. So this is not included. The bottom end includes the potential further phasing of projects. If that happens, that would turn to the bottom end. The upper end includes, of course, the continuation of the businesses in our materials segment, AI-driven advanced nodes technology, as well as an acceleration of memory, specifically NAND, and analog. This would bring us more towards the top end of the guidance.

Hey, Jean Charles speaking on the PS question. I mean, you know that we depend mostly on the map commercial activities. And we said earlier that roughly 90% of our portfolio is consumable driven. So as such, we have limited exposure on capex.

Thank you.

Thank you. This concludes today's question and answer session. I'll now hand the call back to Florian Schroeder.

Thank you, Florian, and thank you, everyone, for your continued interest in Merck. To summarize, we had a solid start into the year, clearly. showing a proof point of our adaptability in this evolving macroeconomic environment. Obviously, we remain committed to vigorously executing our strategy and delivering our promises for profitable growth and sustainable value maximization. And importantly, we look forward to meeting many of you at the upcoming growth shows and conferences, including ASCO 2025. Please note that we will be hosting our CMD, our Capital Market Day, on October 16th here at our headquarters in Damsat, as you might have already seen on our webpage. The team will send an invitation with all details in your course, and we would be delighted to welcome as many of you as possible. But now, before this call is closed, I want to take the opportunity to say goodbye to Peter and Matthias for whom it has been their final earnings call today at Merck. Both of them joined early 2021 and I have to say that when Peter and Matthias joined Merck, the seas that we were navigating were anything but smooth, kind of a difficult situation like the one we are confronted with today. for different reasons. At that time was post-COVID, COVID and post-COVID pandemic. And we were very fortunate to have two skilled captains in command during these times. And to stay in this picture, both have played a crucial role in transforming healthcare and life science during their tenure to prepare the sectors very well to overcome other storms, the current and future storms. So as they embark on their next adventures outside of Merck, I want them to know, I want you to know that your impact will be felt long after you leave and your contributions have truly shaped who we are today and I'm grateful, very grateful for the time we shared together. A big thanks to both of you. And with this, thanks everyone for joining the call and goodbye.

Ladies and gentlemen thank you for your attendance. This call has been concluded. You may disconnect.