Stable business development Audited

Total revenues

Total revenues increased by 2.1% to € 7,747 million in 2009. While both Pharmaceuticals divisions grew continually, the Chemicals divisions recovered from the economic crisis in the course of the year. Detailed information on the revenue and profit figures of the divisions, as well as developments by region and product, can be found in the chapters on the individual divisions starting on page 34.

Royalty and commission income declined by 4.8% to € 369 million. In 2009, we reclassified commission income from marketing and selling costs to total revenues (€ 24 million in 2009, € 32 million in 2008), since these now represent regular business revenues for Merck. The previous year’s figures and key indicators have been adjusted accordingly.

Total revenues by business sector*

Gross margin

At € 5,718 million, gross margin rose only slightly, by 0.6%, over 2008 because the 6.5% increase in cost of sales exceeded the increase in sales. This was primarily the result of a high level of inventory write-downs and capacity underutilization in the Chemicals business sector. Marketing and selling expenses increased by 6.8% because the Merck Serono division launched new medicines and introduced existing products in new indications. The ratio of these expenses to total revenues increased slightly from 28% to 29%. Marketing and selling expenses also include royalty and commission expenses. These are incurred for sales of products which we either co-market with partners or for which we pay royalty fees in order to market. The sum of both items increased significantly over 2008 since sales of the relevant products developed well, consequently increasing marketing and selling expenses.

Royalty and commission income and expenses

Royalty and commission income and expenses include the royalty and commission income reported in total revenues. They also include the expenses for marketing licenses, which are disclosed in marketing and selling expenses, as well as to a lesser extent expenses for production licenses, which are reported in cost of sales.

Administration expenses

Administration expenses decreased by 4.8% to € 425 million in 2009. The line item “other operating income and expenses” increased sharply from € -170 million to € -373 million. This mainly reflects additions of € 167 million to provisions for litigation relating primarily to the Merck Serono division. Furthermore, we recorded € 38 million in impairments of mainly intangible assets since research projects had to be discontinued. We also recorded write-downs of € 28 million for trade accounts receivable. Expenses amounting to € 68 million were recorded for currency risks in Venezuela. Of this amount, € 59 million was attributable to the Merck Serono division, € 7 million to Consumer HealthCare, and € 2 million to Performance & Life Science Chemicals. This is in contrast to the exchange-rate gains from currency hedging transactions for the Merck Serono and Liquid Crystals divisions.

Research and development

We increased our research and development (R&D) spending because, for the first time in its history, Merck is conducting studies on ten projects in the final phase of clinical testing prior to a potential market launch. At € 1,345 million, we spent 8.9% more on R&D than in 2008. Thus, the ratio of R&D expenses to total revenues was 17%.

Research and development by business sector

Operating result

Amortization of intangible assets, which for the most part includes ongoing amortization from the Serono purchase price allocation, was also affected by one-time expenses in 2009. As a result of altered estimates of the future amount of royalty income for the products Enbrel® (Amgen) and Puregon® (Merck & Co.), the corresponding license rights were partly written down by € 72 million. Both license rights were capitalized in 2007 within the scope of the Serono purchase price allocation. This is reported under amortization of intangible assets. As a result, expenses increased by a total of 15% to € 658 million. Overall, Merck generated an operating result of € 649 million, corresponding to a decline of 43% compared with 2008.

Operating result by business sector

Exceptional items

In 2009, Merck recorded exceptional items totaling € –28 million. These include costs of € 40 million for withdrawing the psoriasis drug Raptiva® from the market after the suspension of the product’s marketing authorization. In addition, we recognized income of € 11 million from the divestment of the business with natural substances in Brazil (Performance & Life Science Chemicals division). Moreover, an adjustment in connection with an earlier exceptional item amounting to € 1 million was made.

Financial result improves and profit after tax maintained

Merck’s financial result improved in 2009 by € 22 million or 14% year-on-year to € –134 million. The tax rate adjusted for exceptional items developed favorably. It amounted to 21.6%, compared to 25.8% in 2008. Further details can be found under Corporate and Other starting on page 68. At € 377 million, profit after tax in 2009 nearly reached the previous-year amount of € 379 million.

Profit before and after tax