Cancer and multiple sclerosis are of particular importance to the Merck Serono division as they are diseases for which we offer patients therapeutic options. In the diabetes field, our product Glucophage® is the drug of choice for first-line treatment of type II diabetes. The IMS Institute states that biologics will continue to gain in importance. It is forecast that seven of the top ten medicines will be of biologic origin by 2016. The Merck Serono products in the fields of oncology and multiple sclerosis are biologics and account for large proportion of the division’s sales. Evaluate Pharma expects biologic drugs to attain a market share of 21% in the coming year and 22% in 2014. The research firm also estimates that oncology drugs will remain by far the number-one therapeutic area in its forecast for 2018. The market researchers state a 7.1% CAGR (compound annual growth rate) to a volume of US$ 104.1 billion from US$ 64.6 billion in 2011 for oncology. The second biggest therapeutic area is forecast to remain anti-diabetes drugs with 7.8% CAGR and a total volume of US$ 58.2 billion by 2018.
Therapies to treat multiple sclerosis are said to rank twelfth with a volume of US$ 15.1 billion and a growth rate of 2.6% (CAGR).
The IMS Institute reinforces the aforementioned forecasts. They predict oncology drugs to reach a volume of US$ 83 billion to US$ 88 billion by 2016 and by this be the leading therapeutic area followed by antidiabetics. This market is expected to reach a volume of US$ 48 billion to US$ 53 billion by 2016. Drugs for patients suffering from multiple sclerosis are expected to rank thirteenth and reach a market volume of US$ 14 billion to US$ 16 billion by 2016.
For the Merck Serono division, we expect a slight, organic sales increase in 2013 and 2014, however, slower than in 2012. We currently assume no major new product launch in our forecast.
The efficiency program should lead to further cost savings and thus enable further EBITDA pre improvement in both years. In 2013 and 2014 we still expect one-time costs related to our efficiency program which will be lower compared to 2012. Around € 150 million are expected to be incurred in 2013, decreasing to around € 50 million in 2014. Free cash flow will be negatively affected by the cash payments in relation to the efficiency program, although in 2013 it may not reach the levels of 2012. As the cash payments for the efficiency program are expected to decrease in 2014, cash flow should improve again in 2014.
Divisional EBIT includes the amortization of intangible assets with definite useful lives that were measured at fair value within the scope of the Serono acquisition. Amortization is expected to amount to around € 600 million in 2013 and to decline to around € 570 million in 2014 owing to the expiration of the useful lives of several assets. Marketing and selling expenses, administration expenses and R&D costs should slightly decrease in 2013 and 2014 as a result of the efficiency program. Total annual net savings of € 300 million should be achieved by the end of 2014. R&D spending is contingent upon the investment that will be made in the Biosimilars area.
Merck Serono assumes that sales of Rebif®, its top-selling product, will stagnate in 2013 and start to decline in 2014 as a result of increased competitive pressure. Sales of the oncology drug Erbitux® will only slightly improve or even stagnate in 2013 and 2014, also due to increased competition. For the other franchises such as Fertility, Endocrinology and CardioMetabolic Care, we also expect to see slight growth in both 2013 and 2014. The markets of Asia and Latin America will remain our geographic growth drivers in the coming years. Opportunities in Europe and the United States, Merck Serono’s main sales markets today, will result from life cycle management as well as the development of new dosage forms. Royalty income will decline to around € 180 million to € 200 million by 2014.
Ongoing high levels of national debt in some countries and the associated potential reductions in health care spending could lead to declines in sales of some products. Moreover, litigation has been widespread in the pharmaceutical industry for years and this has also adversely impacted Merck Serono in the past. We cannot rule out the possibility of this also being the case in the coming years.
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