Merck Millipore is a leading supplier to the life science industry. Its products and services are used for customers in the research, development and production of biotech and pharmaceutical drugs as well as general laboratory applications.
Evaluate Pharma forecasts that the research and development spending in the pharmaceutical industry, which encompasses the main customer base of Merck Millipore, will grow by an average of 1.5% per year from 2011 to 2018. The firm predicts R&D costs will total US$ 136 billion in 2013 and US$ 138 billion in the year after.
In addition to the overall growth of the pharmaceutical industry, Evaluate Pharma also states that biotechnology products will lead the growth with an expected CAGR of 6.2% to 2018. The aforementioned area is a field where Merck Millipore markets products and services to accompany its customers across the entire product development process from drug discovery to production and thus will benefit from the above market growth rates. Small molecule drugs, an area where Merck Millipore offers products to enable research and development, still account for the largest proportion of pharmaceutical drugs and are set to grow 1.0% CAGR until 2018.
Besides the development of the spending in the pharmaceutical industry, the future development of Merck Millipore is dependent on the demand for laboratory chemicals. Market researchers from Frost & Sullivan expect the market volume of laboratory products to grow by 3.5% in 2013.
The Merck Executive Board expects that the Merck Millipore division will achieve moderate organic sales growth in 2013 and 2014. EBITDA pre will continue to grow in line with sales in both years. The division’s EBIT includes amortization of intangible assets that were measured at fair value in connection with the Millipore acquisition. These are expected to amount to around € 190 million in 2013 and 2014. Innovations and new product launches will be an area of focus for the division’s future growth. For this reason, R&D costs are expected to rise further in 2013 and 2014. We will incur one-time costs related to efficiency measures in both 2013 and 2014, primarily affecting production and logistics. Despite higher capital spending on property, plant and equipment in 2013 and 2014 to support growth, free cash flow will grow in the coming years driven by close monitoring of inventories.
The Bioscience business unit of Merck Millipore develops products that help scientists to better understand complex biological systems and to discover and develop new therapies. The extensive product portfolio of this business unit is well positioned to grow in the dynamic market, where the innovation and launch of new products is a key component of the development of sales. Parts of the Bioscience business will continue to face challenges due to the slowdown in global economic growth in conjunction with cuts in government research budgets which is currently causing the life science market to soften. We see potential risks associated with the ongoing consolidation and restructuring of the pharmaceutical industry.
The Lab Solutions business unit supplies a broad portfolio of innovative, reliable, high-quality products for general laboratory applications, including water systems, and is expected to grow modestly.
The opportunities for the Process Solutions business unit, which supplies consumables and services for major pharmaceutical and biotech manufacturing companies, lie in a comprehensive product and service portfolio and a geographic presence in future growth markets. A potential volume increase could stem from demand for new products and new service offerings.
Apart from the established markets of Europe and North America, the geographic growth drivers of the Merck Millipore division will be China and India, as well as markets in Latin America.
Risks for the division could also arise from the cost pressure which dominates the life science, biotech and pharmaceutical industry. Overall, we aim to achieve further earnings growth in an uncertain market environment by offering a broad product portfolio, aligning our business globally, continuing to bring innovative products and solutions in the market and leveraging our regional strengths.
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