Merck KGaA: Giant in Pharmaceutical and Chemical Industries
Year:2010 ISSUE:22
COLUMN:COMPANY FOCUS
Click:356    DateTime:Nov.25,2010
Merck KGaA: Giant in Pharmaceutical and Chemical Industries    
- Media Interview with Dr. Karl-Ludwig Kley, Chairman of the Executive Board

Merck KGaA is a global private pharmaceutical and chemical company that headquarters in Darmstadt, Germany. It was founded in 1668, making it the world's oldest operating chemical and pharmaceutical company. Merck family, approximately 150 partners, hold about 70.3% interests in Merck KGaA, and free shareholders own the remaining 29.7% which surely bring them high profit.
    The Merck Group grows faster than industry in the USA, China, Japan, India and other emerging markets. Its total annual revenue has kept growing since 2004, when the company set to arranging strategy adjustment. Total revenue rose from EUR5 859 million in 2004 to EUR7 747 million in 2009, and the projected total revenue for 2010 will reach EUR9 390 million.

    In the last seven years, how has Merck developed the company from nine divisions in 2003, by divestment, integration and cultivation, to four divisions in 2010? "The complete restructuring of the company returns a business model which demonstrates Merck in the over 340 years to be a market leader", said Dr. Karl-Ludwig Kley, Chairman of the Executive Board/Merck KGaA.
   The giant changed its business model, not only in innovation but also in financial.
    In financial terms, today's business model stripped off all of the businesses less than 10% profit margins such as Laboratory Distribution, Generics and Electronic chemicals, but holds these four segments with profit margins higher than 10%: Performance Materials, Consumer Health Care, Merck Serono and Merck Millipore. Performance Materials segment is organized by two strong business units - Liquid Crystals which is forecast to occupy 75% of revenues in 2010 and Pigments & Cosmetics will contribute the remaining sales.
    Through these strategies, Merck KGaA raised its average profit margin from 10%- 20% during 2000 - 2006, to 20% - 30% during 2007 -2010.
   In recent years, Merck KGaA attaches great importance to the development of its businesses in North America and Asia. Its sales revenue in North America region grew to EUR1 643 million in 2009 from EUR886 million in 2006, at an average annual growth rate of 28.5%. Its recent investments in North America includes EMD Serono with build-up of Research Center in Billerica (EUR40 m), and in Life Sciences is the acquisition of Millipore (EUR5.3 bn).
   In Asia, it grew to EUR2 141 in 2009 from EUR1 943 in 2006 and the annual growth rate is 3.4%. Among this, Millipore contributes pro-forma sales of EUR236 million. Dr. Karl-Ludwig Kley says the figure will still increase for 2010. For further growth forcast, Merck KGaA keeps adding investment in Asia in recent investments years: it built Merck Serono, a Research Center in Beijing of China (EUR150 m); in Liquid Crystals business is the Build-up of new R&D center in South Korea (EUR13 m); in Life Sciences is the Acquisition of Bangalore Genei Private Ltd. in India (EUR6 m).
   Merck Millipore and Performance Materials are the chemicals business sectors focus their attention on chemical products for technically demanding applications in the R&D and industrial sectors. Pro-forma revenues for the Chemicals Business Sector are projected to be EUR 3.8 billion in 2010.
   "Fifteen years ago, Merck KGaA developed the first material for flexible displays, every third year, it came up the new technology. At present, Merck offers a wide range of OLEDs (organic light-emitting diodes) materials for displays and lighting applications. We forecast a bright prospect for OLED's application in lighting area in the future. PS-VA technology (polymer-stabilized vertical alignment) is the current leading technology on display markets, and only Merck owns this technology." Dr. Karl-Ludwig Kley told CCR the company's technology development process, "We are now continue to pave the way for the next generation materials, which mainly focus on energy reduction and customer friendly ship." He discloses that the Performance Materials division will concentrate strength on the development of materials for Photovoltaics and Printed Electronics businesses, including materials for organic thin film cells, ionic liquids for dye solar cells, anti-reflective coatings, organic electronics and inorganic semiconductors.
   In July 2010, Merck KGaA announced the successful completion of its acquisition of Millipore Corporation, a leading Life Science company based in Billerica, Massachusetts, USA, for an aggregate purchase price including debt and cash of approximately EUR 5.2 billion (US$ 7.0 billion), and formed the Merck Millipore division. After the acquisition, Merck Millipore's Bioscience business contributes about 20% of sales; Lab Solutions which offer products for specialized life science research labs contributes 40% of sales, and Process Solutions which supply products used in the production of biopharmaceutical drugs, also contributes 40%.

Merck in China  

In fact, Merck started its first business with customers in China in 1897. One hundred years later, Merck presents to be famous known in China as Merck Chemicals (Shanghai) Company and Merck Serono China with sales network covers 18 major cities of China and with more than 1 800 employees. After the acquisition of Suzhou Taizhu (pigments), Taicang in 2009 and the integration of Millipore operations in 2010, Merck is planning the establishment of Liquid Crystals Application Lab in Shanghai in 2011.
   Merck's Pharma products in China, which under the operation of Merck Serono China, covers Cardio Metabolic Care, Endocrinology, Oncology, Surgery, Fertility, Neurodegenerative diseases and Autoimmune and inflammatory diseases. Merck Chemicals in China includes Liquid Crystals (LC) for display applications, effect pigments and life science products for all stages of the innovation and production cycle.
   "China is a key market for Merck. Our total revenues in China is projected to be EUR240 million in 2010 - EUR175 million from pharmaceuticals business and EUR 65 million from chemicals business," Dr. Karl-Ludwig Kley says.
   The planned LC Application Lab in Shanghai Zhangjiang Hi-Tech Park will be launched near Merck Millipore and future location of Merck Chemicals Headquarters. Construction on the Lab will be conducted in two phases. The first phase will start up in mid 2011. It will offer the display customer service, support and training. The second phase is due for completion in 2012. Its business covers full spectrum of LC R&D activities, mixture development, customer support, defect analysis and physical and chemical analysis. "Although this LC Application Lab is not planned with heavy investment in finance, it surely will lead the development of the Chinese flat panel display industry in technology," Karl says.
   He also claims that Merck has no plans for acquisition of Chinese enterprise, "We think it is not suitable for M&A in China, so we will not like to do such business here. However, for our strategies in China, we aim to grow with the Chinese enterprises such as Sinopharm, and we will strengthen the cooperation with the Chinese research institutions and organizations, to build our own R & D base here."






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