Disclaimer Publication of
`
` Merck KGaA, Darmstadt, Germany. In the United States and Canada the
` subsidiaries of Merck KGaA, Darmstadt, Germany operate under the
` umbrella brand EMD.
`
`Page 1
`
`

`

`Merck
`Annual Report
`2012
`
`Merck
`
`Annual Report 2012
`
`The road to tomorrow
`
`Performance-oriented
`
`Effi cient
`
`Committed
`
`Objective-driven
`
`Page 2
`
`

`

`We are Merck
`
`We are a leading pharmaceutical, chemical and life
`science company with four strong and dynamic divisions:
`Merck Serono, Consumer Health, Performance Materials
`and Merck Millipore.
`We have a clear focus on research and development
`as well as profi table, high-margin specialties for high-
`growth markets.
`We are committed to living our social, economic and
`ecological responsibility – toward people, toward our
`partners in the market and toward our shareholders.
`With around 39,000 employees in 66 countries.
`
`Objective-driven
`Committed
`Performance-oriented
`Effi cient
`Since 1668
`
`Emanuel Merck (1794 – 1855) ➝ established the world‘s oldest pharmaceu-
`tical and chemical company out of the Engel-Apotheke (Angel Pharmacy),
`which was founded in 1668. Today we are carrying this tradition into the
`future with pioneering spirit and innovative strength.
`
`Merck
`Annual Report
`2012
`
`Merck
`
`Annual Report 2012
`
`The road to tomorrow
`
`Performance-oriented
`
`Effi cient
`
`Committed
`
`Objective-driven
`
`Page 3
`
`

`

`Contents
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` The road to tomorrow
`
`To our Shareholders
`#01
`023 ➝ Letter from Karl-Ludwig Kley
`026 ➝ The Executive Board
`#02 Group Management Report
`031 ➝ Merck at a glance
`037 ➝ Corporate Responsibility
`046 ➝ Merck Shares
`048 ➝ Overall Economic Situation
`049 ➝ Financial Position and Results of Operations
`058 ➝ Merck Serono
`070 ➝ Consumer Health
`074 ➝ Performance Materials
`078 ➝ Merck Millipore
`083 ➝ Corporate and Other
`084 ➝ Risk Report
`091 ➝ Report on Expected Developments
`098 ➝
` Report in accordance with Section 315 (4)
`of the German Commercial Code (HGB)
`098 ➝ Subsequent Events
`#03 Corporate Governance
`101 ➝ Statement on Corporate Governance
`121 ➝ Report of the Supervisory Board
`124 ➝ Objectives of the Supervisory Board with respect to its composition
`#04 Consolidated Financial Statements
`128 ➝ Consolidated Income Statement
`129 ➝ Consolidated Statement of Comprehensive Income
`130 ➝ Consolidated Balance Sheet
`131 ➝ Consolidated Cash Flow Statement
`132 ➝ Consolidated Statement of Changes in Net Equity
`134 ➝ Notes to the Group accounts
`#05 Responsibility Statement
`#06 Auditor’s Report
`#07 More Information
`210 ➝ Glossary
`215 ➝ Financial Calendar for 2013
`216 ➝ Awards and Recognitions
`
` ➝ Business Development 2008 – 2012
` ➝
`Information and Service
`
`Page 4
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`

`

` Contents, Merck In brief
`
`The Merck Group
`
` In brief
`
`Key figures of the Merck Group
`
`€ million
`Total revenues
`Sales
`Operating result (EBIT)
`Margin (% of sales)
`EBITDA
`Margin (% of sales)
`EBITDA pre one-time items
`Margin (% of sales)
`EPS pre one-time items (in €)
`Free cash fl ow
`
`Group sales
`
`€ million
`
`2012
`
`2011
`
`2010
`
`2009
`
`2008
`
`0
`
`0
`
`EBITDA pre one-time items
`
`€ million
`
`2012
`
`2011
`
`2010
`
`2009
`
`2008
`
`0
`
`0
`
`2012
`11,172.9
`10,740.8
`963.6
`9.0
`2,360.2
`22.0
`2,964.9
`27.6
`7.61
`2,039.9
`
`2011
`10,276.4
`9,905.9
`1,132.1
`11.4
`2,730.9
`27.6
`2,723.8
`27.5
`6.79
`1,436.4
`
`Change
`in %
`8.7
`8.4
`–14.9
`–
`–13.6
`–
`8.9
`–
`12.1
`42.0
`
`10,740.8
`
`9,905.9
`
`8,928.9
`
`7,377.7
`
`7,201.6
`
`2,964.9
`
`2,723.8
`
`2,545.0
`
`1,652.6
`
`2,051.8
`
`Page 5
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`

`

` The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to
`tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The road to tomorrow The
`
`The
`road to
`tomorrow
`Merck
`Annual Report
`for 2012
`
`
`
` Join us on the road to tomorrow –
`with our 2012 Annual Report, which offers far
`more than just a look back at the past year. Follow
`our progress on this journey – with our online
`media as well as our media for tablet computers.
`More information is available online at:
`➝ www.merckgroup.com
`➝ magazine.merck.com
`
`Page 6
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`

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`Fit for2018
`
`I
`
`MERCK ANNUAL REpoRt 2012 – thE RoAd to toMoRRow – www.MERCKgRoUp.CoM
`
`Future
`growth
`
`A shared
`performAnce culture
`
`➝ Five leadership principles “Results Orientation”,
`“Efficiency”, “Global Footprint”, “Innovation/Quality”, and “Customer Focus”
`➝ An improved feedback culture
`
`Greater
`efficiency
`➝ Less complexity in structures and processes
`➝ Lower costs in all units, functions and countries
`➝ A continuous improvement program
`in daily business
`
`Global
`leadership organization
`➝ New appointments to management
`positions throughout the entire company
`➝ A new talent and
`performance management process
`
`New
`strategy:
`➝ Group strategy
`➝ Divisional strategies
`➝ Ten strategic growth initiatives
`on which investments are focused
`
`2
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`Fit for 2018
`
`Page 7
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`

`

`3
`
`Ideas that connect
`Ideas that enable change
`
`The future is created in the minds and hearts of pioneering thinkers and
`dynamic entrepreneurs. With expertise, passion and innovative products,
`Merck provides valuable impetus to improve and enrich everyday life as well
`as the health and lives of people – on both a small and large scale.
`Yet the future is also being created by the visionary ideas and clear goals of
`the pharmaceutical, chemical and life science leader of tomorrow.
`On the road to tomorrow we launched a change process called “Fit for 2018”.
`We are streamlining our organizational structure and at the same time align-
`ing it specifically to current and future requirements. We are giving our
`strong divisions full business accountability. We are increasing our profitability
`and establishing clear guidelines with centrally steered corporate development
`targets. We are establishing a performance-oriented culture while promoting
`objective-driven thinking, engaged teamwork and efficient actions.
`Our shared ideas connect us. They are changing our company.
`
`FundaMenTal TransFOrMaTiOn
`FOr FuTure grOWTh
`
`3
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`The road to tomorrow
`
`Page 8
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`

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`Objective-driven
`
`Merck
`
`I
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`MERCK ANNUAL REpoRt 2012 – thE RoAd to toMoRRow – www.MERCKgRoUp.CoM
`
`The road to tomorrow
`
`Ideas that connect ➝ Ideas that enable change
`
`4
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`The road to tomorrow
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`Page 9
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`

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`Ideas that connect
`
` Objective-driven
`
`The road to tomorrow 1 / 4
`
`Through our
`objective-driven
`actions, we’re
`capturing new
`markets
`
`-A-
`
`-B-
`
` Objective
`➝ General: A clearly defined, targeted future status.
`➝ To us: The motivation for our actions and the key driver
`of our innovative strength.
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`1
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`/4
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`5
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`The road to tomorrow
`
`Page 10
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`

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`Ideas that enable change
`
` Objective-driven
`
`-A-
`
`
`
` Eshmuno – how shared goals lead to
`competitive advantages
`➝ Objective-driven actions are a cornerstone of our corporate strategy. Constant
`innovations have enabled us to become a driving force in the life sciences sector
`and help our customers – whether research laboratories or pharmaceutical manu-
`facturers – to work even more productively and safely.
`➝ We’re doing this with the new eshmuno product line. These “smart” ion exchange
`resins make the purification of biomolecules much easier, faster and more produc-
`tive. As a result, it is possible to obtain purified blood factors in the downstream
`processing of blood plasma.
`
`-B-
`
`Eshmuno ➝ helps to produce new medicines, for instance to treat hemophilia.
`
`1
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`/4
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`

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`The road to tomorrow
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`Page 12
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`

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`Performance-oriented
`
`Merck
`
`I
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`
`The road to tomorrow
`
`Ideas that connect ➝ Ideas that enable change
`
`8
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`Merck 2012
`The road to tomorrow
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`Page 13
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`

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`Ideas that connect
`
` Performance-oriented
`
`The road to tomorrow 2 / 4
`
`Performance
`and customer
`focus bring us
`closer to people
`
`-A-
`
`-B-
`
` Performance
`➝ General: The result of an endeavor over a certain period of time.
`➝ To us: The foundation for achieving our objectives and meeting the needs
`of our customers and business partners.
`
`2
`
`/4
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`I
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`9
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`Merck 2012
`The road to tomorrow
`
`Page 14
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`

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`Ideas that enable change
`
` Performance-oriented
`
`-A-
`
`
`
` Gonal-f ® – how performance
`creates mutual benefit
`➝ Performance and customer orientation are two of our top priorities at
`our pharmaceutical research hubs in darmstadt (germany), Boston, Ma
`(united states) and Beijing (China), because our focus is on people. This
`particularly applies to our research and development work in fertility in
`order to support couples who wish to conceive.
`➝ Increasing fertility: That is what our successful drug gonal-f ® stands for.
`With this product, we are helping people to enrich their lives through new
`life, bringing joy to couples in over 100 countries around the world. Their
`happiness is what inspires us to aim for even higher levels of performance
`each and every day.
`
`-B-
`
`Gonal-f ® ➝ is a leading global fertility product that reflects how we understand performance
`and customer orientation. With sales increasing by 16 percent to € 612 million in 2012, this product
`is one of our top-three selling drugs.
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`2
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`/4
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`The road to tomorrow
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`Page 15
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`

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`I
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`The road to tomorrow
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`Page 16
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`

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`With commitment
`
`Merck
`
`I
`
`MERCK ANNUAL REpoRt 2012 – thE RoAd to toMoRRow – www.MERCKgRoUp.CoM
`
`The road to tomorrow
`
`Ideas that connect ➝ Ideas that enable change
`
`12
`
`Merck 2012
`The road to tomorrow
`
`Page 17
`
`

`

`Ideas that connect
`
` With commitment
`
`The road to tomorrow 3 / 4
`
` We are committed
`
`to helping
`people all over
`the world
`
`-A-
`
`-B-
`
` Commitment
`➝ General: Personal effort applied to a certain cause.
`➝ To us: The basis for our exceptional ideas with which we sustainably
`help people around the world.
`
`3
`
`/4
`
`I
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`13
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`The road to tomorrow
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`Page 18
`
`

`

`Ideas that enable change
`
` With commitment
`
`-A-
`
`
`
` Minilabs – how a charitable initiative
`is delivering sustainable support
`➝ Commitment, courage and responsibility are values that have always character-
`ized us. On this basis, we constantly develop exceptional solutions – not just for
`our customers and employees, but for people all over the world.
`➝ Our Minilabs are one example of a solution that helps people. These mobile
`laboratories can be used worldwide to check medicines for their authenticity.
`They were developed by the global Pharma health Fund (gPhF), a charitable
`initiative funded by Merck. Thanks to gPhF and its collaboration with inter-
`national partners, our Minilabs are being used in over 80 countries around the
`world to check the quality of medicines.
`
`
`
`-B-
`
`Minilab ➝ Interpol estimates that up to 30 percent of the medicines being offered worldwide are
`counterfeit or of inferior quality. In developing countries, this rate is many times higher. Globally,
`more than 570 Minilabs are currently in use in more than 80 countries, mainly in Africa and Asia.
`
`3
`
`/4
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`I
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`14
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`The road to tomorrow
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`Page 19
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`

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`I
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`The road to tomorrow
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`Page 20
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`

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`Efficiently
`
`Merck
`
`I
`
`MERCK ANNUAL REpoRt 2012 – thE RoAd to toMoRRow – www.MERCKgRoUp.CoM
`
`The road to tomorrow
`
`Ideas that connect ➝ Ideas that enable change
`
`16
`
`Merck 2012
`The road to tomorrow
`
`Page 21
`
`

`

`Ideas that connect
`
` Efficiently
`
`The road to tomorrow 4 / 4
`
`By working
`together,
`we are creating
`efficient supply
`
`-A-
`
`-B-
`
` Efficiency
`➝ General: The relationship between input and benefit achieved.
`➝ To us: A crucial factor in achieving our objectives, both internally
`and in cooperation with others.
`
`4
`
`/4
`
`I
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`
`17
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`The road to tomorrow
`
`Page 22
`
`

`

`Ideas that enable change
`
` Efficiently
`
`-A-
`
`
`
` Dr. Reddy’s – how efficient cooperation
`creates maximum synergy
`➝ Efficiency is a crucial factor in our work. We want to sustainably benefit from
`synergy effects that are constantly created not only within our company, but also
`in cooperation with other companies. We’re partnering globally with dr. reddy’s
`on biosimilars, drawing benefit from both its expertise and market strength as
`well as from the significant reduction in R&D costs.
`➝ Through biosimilars, we want to decisively improve our range of products and
`services, also for oncology patients, giving them more economical access to
`high-quality medicines, and, last but not least, help optimize the performance
`capability of health care systems in emerging countries.
`
`-B-
`
`Dr. Reddy‘s ➝ Dr. Reddy’s Laboratories Ltd. is an ideal partner with expertise in biosimilars and
`generics as well as in emerging markets. Combining this with our experience in developing,
`manufacturing and commercializing biopharmaceuticals will enable us to achieve success together.
`
`4
`
`/4
`
`I
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`The road to tomorrow
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`Page 23
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`

`

`I
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`
`19
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`Merck 2012
`The road to tomorrow
`
`Page 24
`
`

`

`One TeaM
`
`38,847 employees
`
`One WOrld
`
`€ 11,173 million in total revenues
`
`TOGETHER
`
`on the road to tomorrow
`
`I
`
`MERCK ANNUAL REpoRt 2012 – thE RoAd to toMoRRow – www.MERCKgRoUp.CoM
`
`20
`
`Merck 2012
`The road to tomorrow
`
`Page 25
`
`

`

`To our Shareholders
`
`Merck 2012
`
`# 01
`
`To our Shareholders
`
`023 ➝ Letter from Karl-Ludwig Kley
`026 ➝ The Executive Board
`
`021
`
`028
`
`Page 26
`
`

`

`To our Shareholders
`
`I
`1/5
`
`Letter from Karl-Ludwig Kley
`
`22
`
`Merck 2012
`To our Shareholders
`
`Page 27
`
`

`

`Merck 2012
`To our Shareholders
`
`
`
` Letter from
`Karl-Ludwig Kley
`
`23
`
`In 2012, Merck continued successfully down the “road to tomorrow”. Not only did we make
`progress with one of the most extensive change programs in the 345-year history of the
`company, we also succeeded in further expanding our business in a challenging economic
`environment.
`
`The numbers prove this. Total revenues increased by 8.7% to € 11.2 billion. Our businesses
`grew mainly in emerging markets and in North America. Our strategy to focus on these
`centers of growth is thus paying off.
`
`EBITDA pre one-time items, with which we measure the earning power of operating activities,
`also increased sharply – by 8.9% to € 3.0 billion. Owing to one-time effects in connection
`with the “Fit for 2018“ efficiency and growth program, profit after tax declined by 6.3% to
`€ 579 million.
`
`We reduced net financial debt, resulting primarily from the Millipore acquisition,
`by nearly € 1.6 billion to € 1.9 billion in 2012. We will continue to lower our debt in 2013.
`
`At the Annual General Meeting on April 26 we will propose to increase the dividend by
`€ 0.20 to € 1.70 per share. The level of the dividend payment reflects the robust financial
`strength and good business performance of Merck.
`
`We also made good progress in 2012 with the internal realignment of Merck. We simplified our
`organizational structures, accelerated processes and thus started to lower costs considerably.
`
`
`
`
`
`
`
` For instance, we established a new global leadership organization at Merck. This
`involved numerous personnel changes at the upper levels of management. The
`new structure enables us to address customer wishes and requirements even faster
`and in a more targeted way than before.
`
` At Merck Serono, we streamlined our R&D organization and started to realign
`our development pipeline. Apart from focusing on the most promising internal projects,
`the efforts also included in-licensing agreements.
`
` And lastly, we created the foundations to lower our costs permanently and noticeably.
`The planned closure of the Merck Serono site in Geneva and the framework agreement
`with the employee representatives in Germany were just two steps among many. Nearly
`all countries and areas of the Group were and still are involved in this process, with
`which we are freeing up resources for future growth.
`
`Page 28
`
`

`

`24
`
`Merck 2012
`To our Shareholders
`
`
`
` Letter from
`Karl-Ludwig Kley
`
`In 2013, we will initially be working to globally conclude the efficiency program started in
`2012. It will then be superseded by a continuous improvement program, which will build on
`our achievements and optimize Merck going forward.
`
`At the same time, we are setting the course for long-term profitable growth of our businesses
`by successively further developing our strategy, portfolio and the regional positioning of our
`divisions.
`
`
`
`
`
`
`
`
`
` At Merck Serono, we are working to improve our pipeline – also through in-licensing
`agreements – and to strengthen our regional presence, especially in the United States,
`Japan and China. At the same time, we continue to rely on collaborations with external
`research and development partners.
`
` Strengthening profitability and focusing on strategic brands are the main objectives
`of Consumer Health.
`
` In Performance Materials, firstly we want to defend our global market leadership in liquid
`crystals. Secondly, we are positioning ourselves in OLED technology as a reliable supplier
`and a provider of all-round solutions. And we are repositioning our Pigments business.
`
` In order to achieve even stronger growth with innovative products in the life science
`sector, at Merck Millipore we are investing heavily in research and development as well
`as in bolt-on acquisitions.
`
`In addition to the divisional strategies, we defined strategic initiatives in areas of overriding
`importance to the future development of Merck. One example is the optimization of our
`internal talent management process, which we are using to even better promote prospective
`executives and prepare them for future assignments within the company.
`
`Page 29
`
`

`

`Merck 2012
`To our Shareholders
`
`
`
` Letter from
`Karl-Ludwig Kley
`
`25
`
`Our goal is to transform Merck into a faster and more efficient company that delivers profit-
`able growth through its innovative pharmaceutical, chemical and life science businesses.
`
`In doing so, we will remain true to our well-established values of courage, achievement,
`responsibility, respect, integrity and transparency. They still form the coordinate system by
`which we align our entrepreneurial activity.
`
`In 2018, we want to be a company that is synonymous with innovation, quality and sustain-
`ability. A company that remains recognized for performance, efficiency and the career
`opportunities that it offers around the world. And a company that is respected for its values,
`its culture, and for the fact that it always acts responsibly. In brief: We are committed to
`making great things happen at Merck. That is what our workforce of around 39,000 men and
`women are aiming for each and every day.
`
`The “road to tomorrow”, which we began traveling down in 2011 and 2012, will also serve
`as our path in the coming years. As the German novelist Theodor Fontane once wrote:
`“Courage is good but persistence is better.”
`
`I thank you for the trust and the support that you have shown us on this journey.
`Please remain with us as we continue along the road to tomorrow.
`
`Karl-Ludwig Kley
`Chairman of the Executive Board
`
`Page 30
`
`

`

`The Executive Board
`
`Matthias Zachert
`Chief Financial Officer
`
`Born in 1967, university degree
`in business administration;
`Joined Merck in June 2011 as a
`Member of the Executive Board
`Responsibility for Group functions:
`Group Accounting & Subsidiaries; Group Controlling
`& Risk Management; Corporate Finance; Group Tax;
`Group Insurance; Group Procurement; Investor Relations
`
`Kai Beckmann
`Head of Group Human Resources
`Chief Administration Officer
`Born in 1965, university degree in computer science;
`Joined Merck in 1989;
`Member of the Executive Board since April 2011
`Responsibility for Group functions:
`Group Human Resources; Group Information
`Services; Site Operations; Inhouse Consulting
`
`Karl-Ludwig Kley
`Chairman of the Executive Board
`
`Born in 1951, lawyer;
`Member of the Supervisory Board and Board of
`Partners of Merck from March 2004 to June 2006;
`Member of the Executive Board since September 2006
`Responsibility for Group functions:
`Group Strategy; Group Communications;
`Group Legal & Compliance; Group Internal Auditing
`
`26
`
`Merck 2012
`To our Shareholders
`
`Page 31
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`

`

`Bernd Reckmann
`Responsible for the Performance Materials
`and Merck Millipore divisions
`Born in 1955, biochemist;
`Joined Merck in 1986;
`Member of the Executive Board since 2007
`Responsibility for Group functions:
`Environment, Health, Safety, Security, Quality
`
`Stefan Oschmann
`Responsible for the Merck Serono
`and Consumer Health divisions
`Born in 1957, veterinarian;
`Joined Merck in January 2011 as a
`Member of the Executive Board
`Responsibility for Group functions:
`Patents & Scientific Services
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`28
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`Merck 2012
`To our Shareholders
`
`www.merckserono.com
`
`-i-
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`Page 58
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`-qR-
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`-ID-
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`Merck Serono
`
`Merck Serono is the largest division of Merck. It markets innovative prescription drugs to treat
`cancer, multiple sclerosis, infertility, growth disorders, and selected cardiovascular and metabolic
`diseases. Merck Serono’s products are primarily prescribed by specialists and largely manufactured
`using biotechnology.
`
`MERCK ANNUAL REPORT 2012 – THE ROAD TO TOMORROW – WWW.MERCKGROUP.COM
`
`www.merck-consumer-health.com
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`-i-
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`Page 70
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`Consumer Health
`
`Our Consumer Health division offers over-the-counter pharmaceuticals and focuses on a range of
`well-known brands that primarily address health themes such as mobility, women’s and children’s
`health, cough and cold, as well as everyday health protection.
`
`www.merck-performance-materials.com
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`-i-
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`Page 74
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`-ID-
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`Performance Materials
`
`Performance Materials provides high-tech performance chemicals for applications in fields such
`as consumer electronics, lighting, coatings, printing, plastics, and cosmetics. With a market share of
`between 50% and 60%, Merck has been the market leader in liquid crystal mixtures for many years.
`
`-qR-
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`www.merckmillipore.com
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`-i-
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`Page 78
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`-qR-
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`-ID-
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`Merck Millipore
`
`Our Merck Millipore division is the world’s third-largest supplier of products and services for the
`life science industry. These are used by customers working in research and analytical laboratories
`as well as in pharmaceutical manufacturing.
`
`Our divisions
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`Group Management Report
`
`# 02
`
`Merck
`Group Management Report 2012
`
`031 ➝ Merck at a glance
`037 ➝ Corporate Responsibility
`046 ➝ Merck Shares
`048 ➝ Overall Economic Situation
`049 ➝ Financial Position and Results of Operations
`058 ➝ Merck Serono
`070 ➝ Consumer Health
`074 ➝ Performance Materials
`078 ➝ Merck Millipore
`083 ➝ Corporate and Other
`084 ➝ Risk Report
`091 ➝ Report on Expected Developments
` Report in accordance with Section 315 (4)
`098 ➝
`of the German Commercial Code (HGB)
`098 ➝ Subsequent Events
`
`029
`
`098
`
`Merck 2012
`
`Page 34
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`

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`30
`
`Merck 2012
`Group Management Report
`
`On the road to tomorrow
`
`Transformation process 2012–2018
`
`Group Management Report
`
`I
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`2/5
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`MERCK ANNUAL REpoRt 2012 – thE RoAd to toMoRRow – www.MERCKgRoUp.CoM
`
`Group-wide transformation program
`
` Efficiency
`➝ Simplify the organization
`➝ Optimize cost structure
`➝ Increase R&D productivity
`
` Cultural Change
`➝ Fill key positions with best managers
`➝ Foster performance culture
`
` Portfolio
`➝ No portfolio divestments until 2014
`➝ No transformational deals before 2014
`
` Organic growth
`➝ Exploit leading market positions
`➝ Execute selected bolt-on acquisitions
`
`Merck Serono generates the largest proportion of sales and earnings
`
`1 Including Corporate and Other (€ –211 million)
`
`Sales 2012
`
`€ 10,741 million
`
`EBITDA pre one-time items 20121
`
`€ 2,965 million
`
`2%
`Consumer Health
`
`56%
`Merck Serono
`
`19%
`Merck Millipore
`
`23%
`Performance
`Materials
`
`4%
`Consumer Health
`
`56%
`Merck Serono
`
`16%
`Performance
`Materials
`
`24%
`Merck Millipore
`
`2011
`
`2012
`
`2013
`
`2014
`
`2015
`
`2016–18
`
`Page 35
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`Merck 2012
`Group Management Report
`
`31
`
`Merck at a glance
`
`Our divisions
`Merck is a global company with operations spanning innovative pharmaceutical and biopharmaceutical
`products, life science tools and specialty chemicals. Merck is organized around four divisions.
`
`Group Sales
`
`€ million
`
`2012
`
`2011
`
`2010
`
`2009
`
`2008
`
`0
`
`0
`
`Group EBITDA pre one-time items
`
`€ million
`
`2012
`
`2011
`
`2010
`
`2009
`
`2008
`
`1 Unaudited
`
`0
`
`0
`
`10,741
`
`9,906
`
`8,929
`
`7,378
`
`7,202
`
`2,965
`
`2,724
`
`2,5451
`
`1,6531
`
`2,0521
`
`Merck Serono
`Merck Serono develops, manufactures and markets prescription drugs to treat cancer, multiple sclerosis
`(MS), infertility, growth disorders, and selected cardiovascular and metabolic diseases. In 2012, the division
`contributed 56% to Group sales and 56% to Group EBITDA pre one-time items (excluding Corporate and
`Other). The division was formed in 2007 by the merger of Merck’s ethical pharmaceutical business with the
`biopharmaceutical company Serono.
`
`Page 36
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`

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`32
`
`Merck 2012
`Group Management Report
`
`
`
` Merck at a glance
`
`The Merck Serono
`division focuses on
`biopharmaceuticals
`
`Injection devices
`offer benefits
`
`R&D focus on Oncology,
`MS and Immunology
`
`Merck Serono’s products are primarily prescribed by specialists and sales are dominated by drugs manufactured
`using biotechnology. The two main products, Rebif ® and Erbitux ®, generate around half of the division’s
`sales. Rebif ® is a leading drug for the treatment of relapsing multiple sclerosis, where relapses and recovery
`episodes alternate. The human serum albumin-free formulation of Rebif ® providing improved injection
`tolerability has been available outside the United States since 2007. The targeted cancer drug Erbitux ® is
`approved for the treatment of metastatic colorectal cancer. This monoclonal antibody is also a standard in
`the treatment of squamous cell carcinoma of the head and neck. The fertility franchise, a complete portfolio
`of recombinant gonadotropins delivering around 14% of sales, is an important growth contributor based
`on current trends of couples postponing childbearing until later in life. Additionally, increasing ability to pay
`and access to health care has spurred the growth of Merck Serono’s infertility treatments in the Emerging
`Markets. The General Medicine unit contributes one third of overall sales and comprises branded products
`to treat diabetes and cardiovascular diseases. These drugs are no longer patent protected, yet as is the
`case for Glucophage ® (metformin) in diabetes, they remain recognized standard treatments. Sales of this
`portfolio are growing in the Emerging Markets due to increasing wealth and changing lifestyles. Merck
`has been actively marketing pharmaceutical products in the Emerging Markets for decades and is viewed
`as a trusted partner by doctors and government agencies.
`Often, successful therapy is not just about the drug, but also how it is administered to the patient.
`Merck Serono has years of experience in developing novel injection devices that are easy to use, especially
`in the areas of Multiple Sclerosis, Fertility and Endocrinology. They offer patients the benefit of less painful
`and often more reliable injections than using a prefilled syringe. From the healthcare professional’s
`perspective, these devices can enhance patient’s compliance with treatment. Successful adoption of
`devices has proven to be a significant differentiator even with the advent of generic competition, for
`example in the field of growth hormone deficiency.
`Merck Serono invests around € 1 billion each year in research and development (R&D) focused on the
`core therapeutic areas of Oncology, Multiple Sclerosis, and Immunology. With three global hubs located in
`Europe, North America and Asia, Merck Serono is well placed to access local science and talent as well as
`to conduct global clinical trials.
`In addition to in-house research, Merck Serono is committed to building long-term relationships with
`external partner companies, academic institutions and collaborative groups that enhance the productivity
`of its drug discovery activities, providing access to innovative and emerging technologies. The division is
`also seeking to strengthen its franchises by in-licensing of clinical stage compounds.
`
`Consumer Health
`The Consumer Health division manufactures and markets prescription-free drugs primarily addressing
`health themes such as mobility, women’s and children’s health, cough and cold as well as everyday health
`protection. The division focuses on a number of well-known brands ranking among the top three in certain
`markets. It has a strong base in Europe and is quickly growing in Emerging Markets. In 2012, the division
`contributed 4% to Group sales and 2% to Group EBITDA pre one-time items (excluding Corporate and Other).
`
`Page 37
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`

`

`Merck 2012
`Group Management Report
`
`
`
` Merck at a glance
`
`Market leader in liquid
`crystals based on a
`broad product portfolio
`and R&D investments
`
`Global number three
`supplier in the life
`science market
`
`33
`
`Performance Materials
`Performance Materials is a specialty chemicals business that offers high-tech performance chemicals for
`applications in fields such as consumer electronics, lighting, coatings, printing, plastics, and cosmetics. The
`division comprises the two business units Liquid Crystals and Pigments & Cosmetics. In 2012, Performance
`Materials contributed 16% to Group sales and 23% to the Group’s EBITDA pre one-time items (excluding
`Corporate and Other), indicating the division’s healthy and sustainable profitability.
`Liquid Crystals generates more than 70% of the division’s sales. Based on a market share of between
`50% and 60%, this business has for many years commanded the number one market position for liquid
`crystal mixtures used in liquid crystal displays (LCDs). With the broadest offering in the industry, the business
`unit’s product portfolio comprises liquid crystals tailored to match the individual requirements of the full
`range of LCDs, from small displays in smartphones to ultra-large televisions. The portfolio includes liquid
`crystals based on polymer stabilized vertical alignment (PS-VA) technologies, primarily used in mid- and
`large-sized televisions, as well as liquid crystals based on in-plane switching (IPS) technology, which are
`also used in televisions as well as increasingly in mobile devices such as tablet PCs and smartphones. The
`Liquid Crystals business unit operates in a highly consolidated market with a total of only three suppliers,
`indicating the high barriers to entry as a result of the scientific complexity of liquid crystals and their high
`quality requirements. Liquid Crystals supplies all seven major LCD panel manufacturers that serve television
`manufacturers or other consumer electronics companies. The business unit also offers materials for organic
`light-emitting diodes (OLED) used for new lighting applications and display technologies.
`The Pigments & Cosmetics business unit develops and markets a comprehensive product portfolio of
`decorative and functional pigments, spanning a variety of colors and shimmer effects. These pigments
`are primarily processed into automotive and industrial coatings, plastics, cosmetic products and security
`paints. The portfolio also includes h