Expenses Audited

At € 1,106 million, the division’s cost of sales declined by –7.3% (2012: € 1,193 million), with the decline exceeding the percentage decrease in sales. This was primarily due to higher yields in the manufacture of biotech products as well as strict cost control, which had a positive effect on the division’s gross profit. Overall, however, gross profit improved only slightly by € 8 million to € 5,220 million (2012: € 5,212 million) as it was countered by the € 37 million decline in royalty, license and commission income. Accordingly, gross margin (in percent of sales) rose slightly to 87.7% (2012: 86.9%).

Both the resolute implementation of cost reduction measures and currency translation effects lowered the division’s marketing and selling expenses as well as administration expenses. Marketing and selling expenses fell by –6.0% to € 1,289 million (2012: € 1,371 million) and administration expenses decreased by –2.5% to € 211 million (2012: € 217 million). In 2013, royalty, license and commission expenses totaled € 548 million (2012: € 562 million). This slight decline was primarily the result of currency translation effects as well as lower Rebif® co-marketing expenses in the United States. The significant decrease in other operating expenses (net) from € 669 million in 2012 to € 499 million in 2013 was largely due to the one-time items reported in this line. Whereas in 2012, one-time items (including impairments) amounted to € 391 million and were mainly incurred in connection with “Fit for 2018”, one-time items (including impairments) in 2013 were only € 258 million. In 2013, other operating expenses included an impairment loss on intangible assets classified as a one-time item, of € 127 million, for Humira® in the Merck Serono division. The impairment loss resulted from an out-of-court settlement with AbbVie Biotechnology Ltd., Bermudas, and Abbott GmbH & Co. KG, Germany (together referred to as “AbbVie”). Under this settlement, Merck will receive no further royalty payments for this product from AbbVie as of the second half of 2014.

Research and development expenses were only slightly lower than in 2012, totaling € 1,183 million (2012: € 1,187 million). The ratio of R&D spending to sales thus remained at a high level of 19.9% (2012: 19.8%). The long-term development of the Merck Serono division and the pipeline continues to be a top priority.

Since the useful lives of the two intangible assets capitalized as part of the Serono SA purchase price allocation, namely Avonex® and Enbrel®, have expired, amortization of intangible assets declined significantly by –9.5% to € 597 million (2012: € 659 million).