Forecast for the pharmaceutical sector in general
The market research institute IMS Health expects global sales of pharmaceuticals to increase in 2011 by between 5% and 7% to USD 880 billion. The United States remains the world’s largest market and is, according to IMS Health, predicted to grow between 3% and 5% in 2011. In 2011, the Japanese market, the second largest in the world, will not be affected by the obligatory statutory price cuts that take place every two years. For this reason, we predict 5% to 7% growth in 2011. According to IMS Health, China, now the world’s third largest pharmaceutical market, will grow between 25% and 27%, reaching a volume of around USD 50 billion. The five largest EU markets (Germany, France, Italy, Spain, and the United Kingdom) are expected to grow between 1% and 3%. Countries with emerging pharmaceutical markets, meaning those in which governments are increasing health spending or in which demand is rising, are predicted to achieve growth of between 15% and 17% to between USD 170 billion and USD 180 billion. IMS Health considers the “BRIC countries”, i.e. Brazil, Russia, China, and India, to be among these 17 countries in total.
IMS Health expects the global pharmaceutical market to grow until 2014 by an annual average of between 5% and 8% , to between USD 1,130 billion and USD 1,160 billion in total. By 2014, the five largest markets in the EU are predicted to increase 1% to 4%, (to between USD 170 billion and USD 200 billion). Japan should grown between 2% and 5% (to between USD 100 billion and USD 130 billion) and the United States between 3% and 6% (to between USD 360 billion and USD 390 billion). The health care markets of the 17 emerging pharmaceutical markets are predicted to achieve growth of between 14% and 17% (to between USD 260 billion and USD 290 billion).
Seen by therapeutic area, IMS Health predicts growth of more than 10% by 2014 for products such as those to fight cancer and multiple sclerosis as well as to treat HIV and diabetes since many products for these therapeutic areas are expected on the market. For 2011 alone, market researchers expect launches of five new products with blockbuster potential (meaning products generating sales of more than USD 1 billion).
Forecast for the Merck Serono division
For the Merck Serono division, the Executive Board is expecting an increase in total revenues in 2011 ranging between 5% and 10%, relative to EUR 5,754 million in 2010, and predicts continued growth for 2012. Relative to EUR 565 million in 2010, we want to achieve significant growth in the operating result in 2011 and a further increase in 2012. The stronger increase as compared to total revenues can be attributed to a moderate cost increase, especially in marketing and sales. Furthermore, high write-downs and impairments impacted the operating result in 2010.
As a regularly recurring expense, the result includes write-downs on intangible assets to their fair value as a result of the acquisition of Serono. Amortization is expected to amount to around EUR 600 million in both 2011 and 2012.
In the years to come, R&D spending will continue to be at the target level of 20% of total revenues of the Merck Serono division.
Cancer and multiple sclerosis are very important for Merck, as they are markets in which we offer patients therapeutic options. According to calculations made by Evaluate Pharma, a pharmaceutical service company, cancer therapies will continue to be the therapeutic area with the highest sales. In the global market for all pharmaceuticals, oncology treatments had a share of 7.9% in 2009, which is expected to rise to 8.8% by 2016, reaching sales of USD 70 billion. With sales of USD 10 billion, drugs to treat multiple sclerosis ranked number 14. Here, Evaluate Pharma forecasts an average annual increase of 3% to USD 12 billion up to 2016.
Biotech drugs accounted for 31% of the 100 best-selling pharmaceuticals in 2009. This share is expected to increase to 48% by 2016. This figure is of interest to Merck, as biotech drugs already account for 50% of our pharmaceuticals sold.
We see important opportunities and risks for the Merck Serono division closely linked to the successful launch of new products:
Consequently, the special focus of Merck Serono will be on the market launch of cladribine tablets. Cladribine was approved in Russia and Australia in 2010. For Europe, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) issued a negative opinion regarding the marketing authorization application in September 2010.
We filed an appeal with the EMA against the decision for another review of the application. In January 2011, the CHMP confirmed its previous position and adopted a final negative opinion regarding the marketing authorization application for cladribine tablets. Our forecast has taken this into account. After resubmitting our application for approval of cladribine tablets with the U.S. Food and Drug Administration (FDA) in June 2010, the FDA granted the application Priority Review status. In November 2010, the FDA extended the review period by three months. A decision is expected at the end of February 2011. We will continue to focus our efforts on offering an oral, disease-modifying drug to treat relapsing-remitting multiple sclerosis.
Moreover, the existing business offers growth opportunities, particularly in markets such as Asia – especially China – Russia and Latin America, as well as in the further development of existing products (life cycle management), for example with new dosage forms.
Further risks in this division arise from the high levels of national debt in some countries and the resulting health care cost-containment measures, which can lead to lower sales.
Forecast for the Consumer Health Care division
With total revenues of EUR 472 million in 2010, the Executive Board forecasts an increase in total revenues in the Consumer Health Care division of between 7% and 12% in 2011 and a further increase in 2012. Based on an operating result of EUR 14 million in 2010, we want to achieve significant growth in the operating result in 2011. We expect a further increase in 2012. The expected improvement in the operating result is attributable to higher margins and to moderate cost increases. Due to the difficult business situation in China and Mexico, the division’s sales did not meet our expectations for 2010. Besides these two effects, the operating result was also impacted by a warehouse fire in the United Kingdom as well as impairment losses.
For 2011, market researchers from the company Nicholas Hall are predicting key markets for OTC medicines to grow globally by 4.8%. This growth will be contingent on the markets’ continued recovery and on the upswing that has followed the economic crisis. The experts provide the following breakdown for individual markets: they predict the strongest growth for Latin America (8.8%), followed by Asia-Pacific (7.9%). For Europe, they are expecting growth of 3.5%, but only 0.5% for Japan.
We see opportunities from a strengthening growth trend, based on the product portfolio focus on strategic brands. These brands are established in the premium price segment and are growing above-average relative to the global OTC market. In addition to dynamically growing markets in Latin America, our regional focus continues to be Europe. The Consumer Health Care division faces risks from changing health care policy framework conditions, which can negatively impact the business.
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