Costs 

One-time inventory adjustments booked under cost of sales amounted to € 52 million in the second quarter, with € 39 million stemming from the Performance Materials division and the remainder from the Merck Serono division. Therefore, second-quarter cost of sales jumped 47%, leading to a gross margin increase of only 6.2% to € 1,795 million in the second quarter. For the first half of the year, the gross margin rose 13% to € 3,719 million.

Most figures for the Group continued to show significant variations in the second quarter of 2011 due to the fact that the Millipore acquisition closed on July 14, 2010, and there were no Millipore contributions in the first half of 2010. For example, marketing and selling expenses in the second quarter of 2011 rose 12% to € 605 million.

Royalty, license and commission expenses, mainly on third-party sales of Rebif® in the United States and Erbitux® in Japan, were little changed at € 118 million in the second quarter.

Administration expenses increased by 10% to € 126 million in the second quarter of 2011.

Other operating expenses and income more than doubled in the second quarter of 2011 to € –270 million from € –109 million in the year-ago quarter. Besides Millipore integration costs, this includes among other items an impairment loss of € –161 million due to overcapacity at the Corsier-sur-Vevey Large Scale Biotech (LSB) production plant in Switzerland as well as a provision of € –20 million on the remaining costs associated with halting the development of cladribine, a drug candidate for the oral treatment of multiple sclerosis, as announced in June. Other operating expenses and income in the first half of 2011 rose 50% to € –368 million compared to the year-ago period.

Research and development spending rose 9.0% to € 369 million in the second quarter of 2011 mainly due to increases in the Chemicals divisions.

In the second quarter, amortization of intangible assets more than doubled to € –319 million from € –146 million. This amount includes amortization of intangible assets from the Millipore purchase price allocation amounting to € –46 million and € –263 million from Merck Serono. The latter figure includes € –63 million for the impairment of safinamide, a potential add-on therapy for the treatment of Parkinson’s disease, € –17 million to shorten the amortization period for Rebif®, and an impairment loss of € –35 million on the discontinued cancer treatment candidate IMO-2055 that was in-licensed from Idera Pharmaceuticals in 2007. In addition, there was an impairment loss of € –8.6 million on the value of patents in the Performance Materials division.