MERCK Kommanditgesellschaft auf Aktien (MRK) Q2 2026 Earnings Call Transcript

Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on second quarter 2026. As a reminder, all participants will be in a listen-only mode. I am now handing over to Florian Schrader, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir.

Thank you very much, Heidi. Good afternoon, good morning, everyone, and welcome to our Q2 26 results call. Thank you for joining us today. My name is Florian Schreder, and I'm the head of investor relations at Merck. In our Q2 call today, Kai Beckman, Group CEO, will begin with sharing an update on first steps since we announced our new strategic direction in May. Kai will then provide a brief overview of our business performance and key developments in the second quarter as part of his executive summary. Helene von Röder, Group CFO, will guide you through the detailed financial overview. Before we move into the Q&A session, where we will be joined by Jean-Charles Wirth, CEO of Lifetimes, Denis Barzohar, CEO of Healthcare, and Benjamin Hein, CEO of Electronics, Kai will share our updated outlook and guidance with you. With that, I'm pleased to hand it over to Kai to kick us off.

Thank you, Florian, and good afternoon, good morning, and thanks to you all for joining us today. So before we get to the numbers, let me first give you a sense of where we stand strategically and highlight the milestones we have achieved in recent months since announcing our strategic direction in May. Each of these milestones addresses the evolving expectations of our customers and patients in an increasingly complex world, Geopolitical tensions, shifting trade dynamics, active policy debates, and accelerating AI-driven technology race are all shaping the environment in which we operate. In this context, only a clear plan and disciplined execution will move us closer to the sustainable, profitable growth we are building for our company. Allow me to share a few early proof points. Let me start with the signing of a definitive agreement to acquire Biotechnic Corporation on June 25th. Subject to regulatory approval and closing, Biotechnics' complementary portfolio of high-quality reagents, analytical instruments, and diagnostic systems for precision medicine is expected to be immediately accretive to sales growth and margins. In parallel, we continue to invest in the capacity required to scale our manufacturing and R&D in electronics, delivering precise, reliable, and scalable solutions across the semiconductor value chain. In June, we opened a new metrology and inspection site near Grenoble, France. This 20 million euro investment will expand our capacity for M&I tools in a key semiconductor hub. Our rare diseases portfolio continues to show strong momentum, and our pipeline has also advanced. Sivio and Gomekli both delivered quarter-over-quarter and year-over-year growth. In addition, timicotinib generated first sales in China and preparations for a US launch are underway. The FDA granted breakthrough therapy designation for Empatoran for the treatment of lupus with active cutaneous manifestations. And the first patient was dosed in a phase 3 trial evaluating our anti-Seqam-5 antibody drug conjugate, Presem-TCT, for the third-line treatment of metastatic colorectal cancer. So I'll stop here for today. Going forward, we will continue to share further proof points demonstrating that we are focusing investments where we see the strongest growth opportunities. We will make it easier for customers to work with us through more integrated solutions, and we will share capabilities more effectively across the company. And we will continue to use partnerships and acquisitions where they accelerate progress. And with that, let me turn to our operational and financial performance in the second quarter. So Q2 was a pretty robust quarter. Following a solid start into the year, we continued to build growth momentum in the second quarter. Organic sales growth accelerated to 4.1%, supported by strong contributions from life science and electronics. In life science, growth was broad-based across all regions. Also solutions again delivered strong growth with sales up 15% organically. And as a reminder, we expect the growth profile to normalize in the second half of the year. Advanced solutions also contributed solid growth while discovery solutions showed slight growth in a still-muted market environment. In healthcare, as I pointed out, we are diseases continue to make a meaningful contribution. To better align with our operational structures, we have reorganized the remaining franchises. Cardiometabolic is now reported on a standalone basis, while fertility and endocrinology has been established as a newly created franchise. Both were broadly stable in the quarter. Specialty care, which comprises of neurology and oncology assets, drove the overall organic decline in healthcare, mainly reflecting the impact from Mavenglatt in the U.S. and continued competition for Berencio. In electronics, organic growth accelerated significantly to 12% in Q2. Semiconductor solutions delivered very strong organic growth of 17% fueled by continued momentum in advanced nodes. Optronics remained broadly stable while headwinds in consumer electronics and markets are expected to increase further. As a result, we delivered on our ambition to generate profitable organic growth for the group while continuing to invest in innovation. A bitter pre-margin expanded year over year by 1.6 percentage points to 29.4%. And based on these robust results, we are raising our full-year guidance, and I will share the details with you later in this call. Looking now at the group bridge in more detail on page six, supported net sales increased by 3.4% year-over-year in Q2. Organic sales growth reached 4.1% driven by life science and electronics. A negative currency impact amounted to minus 1.1% and portfolio effects contributed 0.4%. In Q1 organic growth of 2.9% was more than offset by disproportionate foreign exchange headwinds and negative portfolio effects. This quarter, the entire mix of organic growth, FX, and portfolio effects improved visibly, leading to an accelerated growth momentum. Organic EBITDA pre-growth was pleasing 9.3%, also driven by favorable comps in electronics in Q2 2025. So I'm handing over to Helene now to share further details.

Thank you very much, Kai, and a warm welcome also from my side. And with that, let's dive into the overview of key financials on page 8. Net sales increased from 5,255,000,000 euros in Q2-25 to 5,434,000,000 euros in Q2-26. As mentioned already, this is driven by solid organic growth and easing currency headwinds, while portfolio effects in healthcare and electronics largely balanced each other out. EBITDA PRE increased from €1.46 billion to €1.6 billion. The organic increase by 9.3% was driven primarily by life science and electronics, while foreign exchange and portfolio effects were close to neutral, leading to reported growth of 9.4%. EPS PRE increased by 6.9% to €2.16. And this is achieved despite a visible increase in interest costs related to the financing of SpringWorks acquisition. However, for the full year, we slightly reduce our interest cost guidance, as you can see in the appendix. Operating cash flow increased moderately by 6.7% to 605 million euros, which does not tell the full story. Temporary effects are partially offsetting structural improvements and I will come back to this in a minute. Net financial debt increased to 9.2 billion euros as of June 30th, mainly due to the dividend payment. The increase in working capital is largely a Q1 effect, with smaller increases in Q2 essentially relating to foreign exchange effects. Now, one housekeeping item, which I would like to flag already today, is the potential impact of the implementation of IFRS 18. IFRS 18 will become effective as of January 2027. Currently, the calculation of EBITDA pre is based on EBIT. The future EBITDA-PRI will be based on the newly defined IFRS 18 operating profit or loss to which we will add depreciation and amortization as well as adjustable items. Without going into the details at this stage, our simulations suggest that the deviation of past and future EBITDA-PRI is less than 2%. With the introduction of IFRS 18, some definitions of some adjustments will be changing. We've prepared a slide in the appendix of this deck which explains these changes. Now, we will share more insights as we get closer to the implementation of IFRS 18. And with that, let us move on to the performance analysis of the three businesses. And I'm starting with life sciences on page 9. LifeScience sales grew organically by 8% in Q2. Once again, process solutions was the key driver. As we already highlighted in Q1, the business is benefiting from strong underlying demand supported by temporarily stronger purchasing activity in APAC and new customer projects. We saw this already towards the end of Q1, and a temporary uplift continued into early Q2. As anticipated, however, it started to normalize over the course of the quarter. Beyond that, we do not see any unusual effects. We have neither experienced significant delays in customer projects, nor do we see a dependency on specific product groups. Our performance remains broad-based. That said, the assumption which we shared with you in our May call, namely a normalization of the second half in the second half of 26, does remain valid. As expected, the process solutions order book normalized in Q2. Advanced solutions and discovery solutions are on track. Advanced solutions grew 4% organically, with the research spending environment gradually improving. And discovery solutions grew 2% organically, despite a muted market environment, including continued softness in China. EBITDA pre-increased to 700 million euros, with the margin expanding by 50 basis points to 29%. At the same time, we continue to invest in R&D as a key driver of our future growth and differentiation. Examples of such investments include the launch of Virusolve Pro-S solution, which is a virus filtration solution designed to be more sustainable and to improve throughput for complex and high-concentration monoclonal antibodies. We also introduced our first bio-based high-performance liquid chromatography, HPLC solvents, which emit around 26% less CO2 equivalent on average without compromising on performance. And zooming out, there are two more topics. First, tariff-free funds. Effects from tariff-free funds to customers were not material in Q2. For the full year, these effects are reflected in our updated guidance, which Kai will explain in detail in a few minutes. And second, of course, our plans to acquire Biotechni. No news is good news. We are on track. Regarding the account treatment of the pending acquisition of Biotechni, let me remind you that we will see material effects such as recognition of transaction costs only after closing which is expected by the end of this year or in early 27. Following closing we would expect immediate EBITDA pre-margin accretion. We estimate the run rate cost synergies to amount to approximately 140 million euros by year 3 after closing the year in which we also expect to see EPS pre-accretion on group level. Now over to healthcare, which is on page 10. Reported healthcare sales increased by 2.4% to 2.2 billion euros. Organically, sales declined by 3.4%, but that was more than offset by positive portfolio effects from a rare disease portfolio at 5.4%. In rare diseases, Oxivio and Gomecli delivered a combined sales of 207 million euros in H1, which is fully in line with our guidance. We also saw initial sales of Pimicotinib following the private market launch in China. Cardiometabolic sales increased 1% organically amid ongoing constraints in the Middle East and partial reversal of the positive phasing in China, which we flagged to you in Q1. Fertility and endocrinology sales were about stable. Gonal F pricing in the U.S. started normalizing, while Pergoveris continued to deliver double-digit growth, and CISEN was slightly up against Tuffcom. Speciality care declined 6% organically, mainly reflecting Marvin Cloud's loss of market exclusivity in the US, and the competitive environment for Baventio. Notably, Erbitoc sales increased 5% organically. We also have seen progress in the late phases of our pipeline. We have dosed the first patient in our phase 3 study of PRE-SIM-TCT, which is our first-in-class anti-Seq-CAMP-5 ADC in third-line metastatic colorectal cancer. Also, FDA has granted breakthrough therapy designation to NPATURAN for the treatment of lupus with active cutaneous manifestations. And we also have recently filed, sorry, and we also recently received file acceptance from the FDA for pergaviris. However, uncertainty remains. Healthcare EBITDA pre was 747 million euros with a still strong margin of 34.7%. This is supported by a favorable product mix and disciplined cost management, partially offsetting higher R&D investments reflecting the ramp-up of a Phase III pipeline project, as well as launch investments in rare diseases. And let's move to electronics. Electronics delivered a strong quarter with organic sales growth accelerating to 11.7%. Reported sales were 871 million euros, reflecting the portfolio effect from the divestment of surface solutions. Semi solutions grew 17% organically, fueled by continued demand in semi materials, driven by advanced nodes in both logic and memory. Overall, growth was supported by all parts of the portfolio. Delivery systems and services also had a better quarter. due to the finalization of a large project and against a low base. Therefore, I would caution against extrapolating this trend. Optronics remained around stable. However, the business continues to face headwinds from softer demand for consumer electronics influenced by high memory prices. This could result in a year-over-year decline in net sales in the second half. EBITDA PRE increased to US$244 million with the margin expanding to 28%. This represents a sequential increase versus the underlying EBITDA PRE margin in Q1 of around 200 basis points. As a reminder, the EBITDA PRE margin in Q2 25 of 15.1% was suppressed by one-offs. Adjusted for these effects, the year-over-year underlying margin increase would have still been significant. So turning briefly to key developments in our balance sheet. Total assets stood at 52.7 billion euros at the end of June. Cash and cash equivalents decreased mainly due to repayment of euro-denominated bonds. Receivables increased due to continued strong sales performance while inventories increased mainly in life science and healthcare to support future growth. Worth noting is that we saw the main uplift of receivables and inventories in Q1. The incremental increase was basically driven by FX effects in Q2. Intangible assets increased mainly due to foreign exchange effects. On the liabilities side, financial debt increased compared with year N25 as the repayment of euro-denominated bonds was offset by an increase of financial liabilities to related parties and by the US dollar bond increased to foreign exchange effects. The equity ratio increased slightly to 57%. And I would like to round off with a few remarks on cash flow. Operating cash flow in Q2 was €605 million, up from €567 million in the prior year quarter, despite a decrease in profit after tax. Profit after tax was lowered due to reorganization provisions, higher R&D expenses, as well as increased depreciations and amortizations, mainly due to the acquisition of SpringWorks. Most categories in the cash flow statement showed favorable underlying improvements, and I want to highlight networking capital optimization in particular. These effects were offset by temporary changes in the tax balance and paid bond interest. The underlying cash generation has visibly improved in recent months and will remain a strong focus going forward as we strive for fast leveraging after closing of the plant biotechnic acquisition. Investing cash flow was higher, driven by short-term investments and payments for the acquisition of the JSR chromatography business. Financing cash flow reflected the repayment of the euro-denominated bonds. And with that back to Kai.

So thanks a lot Helene and let me now round it off with guiding you through our raised guidance for 2026 on slides 15 and 16. So we now expect organic growth in coop net sales of 1% to 3% compared with 0% to 3% previously. Compared to the previous guidance, we see easing headwinds from foreign exchange rates. Foreign exchange impact is now expected to amount to minus 2% to 0% after minus 3% to minus 1% previously. Hence, group net sales are expected to reach around 21 to 21.8 billion euros. The midpoint of this range equals the high end of our previous net sales guidance of 20.4 to 21.4 billion euros. For EBITDA pre, we now expect 5.9 to 6.3 billion euros, compared with 5.7 to 6.1 billion euros previously. This reflects an organic development of 0% to 3% compared with minus 2% to plus 2% before. EPS pre is expected to be in the range of 7.90 to 8.60, a 5% increase compared to the previous range of 7.50 to 8.20. At the business sector level, you can see how the numbers come together. For life science, we are raising the lower end of our expected organic net sales growth range from 4% to now 5%. The new range of 5% to 7% organic sales growth also includes a potential headwind in tariff-free funds to customers of around 40 million euros. A bit of pre-organic growth in life science is now expected in a range of 5% to 8% compared with 4% to 8% previously. The range of around 2.6 to 2.8 billion euros remains unchanged. For healthcare, Here we now expect organic net sales development of minus 4% to minus 2% compared with minus 6% to minus 3% in May. This is driven by our assumptions on MavenSlet US, now assuming zero sales as of August and slightly better performance in the other parts of the business. Our assumptions continue to exclude a potential Pergoveris launch in the US in 2026. And as of July 1st, Oxivio and Gomecli will be recognized as organic sales. The related portfolio effect is therefore limited to the first half of the year and amounts to plus 2.4% or 207 million euros in absolute terms. EBITDA pre in healthcare is expected to be around 2.8 to 3 billion euros compared with 2.6 to 2.8 billion euros previously. For electronics, we are raising our organic net sales growth guidance to 6% to 9% from 3% to 7% previously, and the portfolio effect from surface solutions divestment amounts to minus 245 million euros. EBITDA-PRI for electronics is now expected to be around 1 billion euros compared with the previous range of around 0.9 to 1 billion euros. The respective range for organic growth moves from 21 to 27 percent, from 21 to 27 percent to 25 to 29 percent, reflecting the recovery and operating leverage in semi-solutions. With that, allow me to conclude with a brief summary before we open the lines for Q&A. We delivered a robust second quarter with accelerating organic sales growth and even stronger organic EBITDA pre-growth. The first half of the year confirms the resilience of our broad portfolio and the relevance of the strategic priorities we outlined earlier this year. We are encouraged by the continued momentum in life science and electronics, and we remain disciplined in healthcare as we invest in our launches and pipelines. Our increased full-year guidance reflects these positive developments, and we will remain focused on executing our strategic agenda, including a potential start of the integration of Biotechni following a successful closing, potentially at the end of this year or early next year. Cross-discipline will remain a priority, while at the same time we continue to invest in innovation to sustain profitable growth in the future. So with that, I will now hand it back to Heidi to open the lines for questions.

Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial star 11 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for our first question. Your first question comes from the line of Peter Verdol from BMP Paribas. Please go ahead. Your line is open.

Thank you, Peter Verdol from BMP Paribas. Two questions to kick off for Kyle, Helena. that. The stock's done well this year, but the key debate in the market is quickly turning to 2027 and the ability for Merck to post organic growth, given the Mavinclad and LifeScience customer stocking tailwinds you've enjoyed this year. So I realize you're not going to give guidance per se on a Q2 conference call, but would like to kick the tires with you and gauge your current level of confidence about organic growth prospects in 2027. And then secondly, and a little more sort of gnarly for Danny. Good to hear that Pergaviris has been filed. Potential uncertainties were flagged in the preparatory remarks. Can you confirm these comments relate to the label you get rather than the approvability of Pergaviris? And if that is correct, can you just remind us what the best case scenario would look like with respect to the label, the FDA label, should the product get approved? Thank you.

So, Peter, thanks for the 2027 question. And, you know, we upgraded our guidance twice this year, life science electronics showing really robust growth, and healthcare is holding up reasonably well amid the generic competition we're seeing. And as we look at the 2027 fundamentals and the underlying trends are very well intact for life science and electronics, and healthcare is focused on executing the strategic agenda in next year and basically 2027 should be well in line with our projections from last year's CMD just as a first highlight, we'll be very much in line with our projections from last year's CMD. Obviously of course the comms will be tough for a major class, no doubt. And both the solutions will have high comparisons high comparison base in the first half of 2027 as we compare it with a very strong first half in 2026. And looking at the proposed transaction to acquire Biotechni. If closed in line with our plans, it would add close to 5% to group sales growth and about 10% to life science alone. And also the transaction would be immediately accretive to group EBITDA pre-margin and we are committed to EPS pre-accretion in year three post-closing. That should give you some color on how we look into 2027 from today's perspective. And as you rightly said, of course, you're not providing any 2027 guidance at this time of the year, but just some color on the question you were asking. And I hand it to Danny for the second question.

Yes, thanks, Kai. Hi, Peter. So, yes, the FDA has notified us late last week of the acceptance of the full BLA submission.

This is per se, this is good news.

Yeah, it's a good milestone. Pergoveris is a great product. As Helena said, however, the uncertainty remains over the potential approval, and I will give you a little bit more color on that. First of all, just to frame it, Pergoveris is the only recombinant FSH-LH combination in the market, and I would say an important innovation for patients who need that. the product is approved in 116 countries around the globe, including China since February this year. It's been growing and taking share in every market where available, underpinning the value that it brings to women struggling to have a baby. Matter of fact, over 6 million babies have been born worldwide with our fertility medicines. In 2026 only, year to date, Perboveris generated sales of over 300 million euros, five years CAGR of over 20%. Now, of course, we are keen to bring Pergoveris also to the US, one of the largest and most innovative pharma markets. We were, I would say, delighted to have received the CNPV as part of our agreement with the White House at the end of last year. However, as we told you before, the procedure as itself is quite new. And the submission is based on a lot of legacy data, mostly generated outside of the United States. So you also need to keep in mind that in the past years, we have already had intense discussions with the FDA regulator and could not agree on a path forward. Hence, we feel there is considerable uncertainty, to Helena's point, about whether the package now is sufficient for the FDA to approve. You also asked how could a best-case label look like. So here I would easily refer you to the EU label or the Canadian label so you can get a sense. That's where we are right now.

Thank you.

Thank you. We will take our next question. Your next question comes from Matthew Weston from UBS. Please go ahead. Your line is open.

Thank you. Two questions, please. The first on process solutions and this comment on normalizing over the quarter, I think I understand, but I'm going to ask you to spell it out. Are we saying that the extra demand has stopped, that the extra inventory remains with the customer and therefore customers, and therefore at some point in time going forward, we should expect that inventory to unwind? And I guess previously you've said no customer is greater than 5% of PS sales, but I assume we can't say something similar for the inventory. It will be more concentrated. And then secondly, on Atacacept royalties, there's been a lot of debate about their leverage to Merck in the market. I know you've said it before. Can you please remind us how much of the royalty you receive and how much you have to pass Hello, Mathieu.

Jean-Charles speaking. Hope you're doing fine. So let me try to clarify the situation. I will start with the Q2. So in Q2, in process solution, we grew organically 15%. And I would like to give you some background behind. we have five key drivers. The first one the market demand remains healthy. The second driver we continue to benefit from our new go-to-market model and few months ago I mentioned that we're improving our service level which which have a positive impact on our overall performance. The third element is linked to what I said back in May when I mentioned that we have observed especially in March special buyer patterns from few very few Asian customers linked to our ongoing geopolitical Middle East conflict the fourth driver was exceptional growth in China mainly due to the fact that some customer order equipment in order to build new plan and the last element is related to the fact that we enjoy some boosts from order intake and sales from non-repeat order which are related to our integrated workflow solution offering. To answer your question, from the five drivers, the last three are the ones who are boosting our performance in Q2.

To your question concerning the inventory de-stocking, we do not anticipate any de-stocking effect in 2026 but you should assume in your model that if we have some inventory disturbing effect it may take place in 2027 regarding a tachyceps so yes the the drug received approval for IGN a property several weeks ago and to your question Matthew it's it's a fair to assume that there remains a meaningful obligation from Merck to BMS when it comes to potential milestones and royalties, and as we are expecting a launch here, in virtually every scenario, the net royalty rate, the net royalty rate upside would remain for us in the single-digit percentage range.

Thank you. Can I just push you? I know there are about 600 million euros of milestones in the original out-licensing agreement. Is it fair to assume that there will be milestones also to Merck over the course of the launch and commercial revenue hits?

The answer is yes. Thank you.

Thank you. We will take our next question. Your question comes from Sachin Jane from Bank of America. Please go ahead. Your line is open.

Hi there. Just a few questions, please. so just a follow-on on the process so could you confirm that process for the full year is still in the upper end of the 8 to 12 you referenced on the last call or does the 1h strength take you slightly above that just given what would be implied for the second half um second question on semis it's around the sustainability of the mid-teens materials and what's assumed within the guide and then i just i wonder if i could just clarify the 27 comment kind apologies it It sounded to me like the biotechnic was the main offset for the tougher comps in the base. Or are you confirming mid-signal digital organic growth, which is what you said at the 25 CMD? Apologies for that clarification.

So I take the 27 question first, Sergeant, just to clarify. So the comment on the commitment from the CMD is organic, of course. And the second comment on biotechnics, then, is, of course, the reported effect. Just these two elements I wanted to highlight. But important is the comment from CMD is the organic part.

And Sanchin, Jean-Charles speaking. Let me answer the first question concerning process solution. First of all, I would like to take the opportunity to talk about our book-to-be ratio. If you look at our book-to-be ratio year-to-date June, so I'm talking about H1, our book-to-be ratio is above 1. And what we assume now, we expect a normalization of our process solution growth during the second half, but our book-to-be ratio should remain above 1. In this context, we see a strong underlying of our growth, and if you think about the range we gave, 8 to 12 percent, we are thinking to land in the upper range of the guidance for the full year.

Hey, Sartre, this is Ben speaking. Thank you very much for your question on SEMI. So just to recap, SEMI Solutions grew 17% in Q2, and this business is the growth driver for the broader electronics business, both in this year as well as in the midterm. Just as a reminder, SEMI Solutions consists of semiconductor materials, which is around 65% of overall electronic sales, as well as the delivery systems and services business, in short, DS&S, which accounts for less than 15% of the total electronic sales. So regarding semiconductor materials, coming to your question, sales were up in the low double-digit percentage point organically. Why? Because it's driven pretty much by the AI-related applications in advanced nodes, both on logic as well as memory. It's also good to see that all parts of the portfolio contribute to this growth. And as you remember, over the past 10 quarters, we have seen an average of low teens growth in this business. So in addition, in Q2, we also saw DS&S contributing to semi-solutions growth. That's unlikely to repeat. Our expectations for DS&S only moderately improve. We see a broad, stable outlook for the remaining quarters in this year. And just to take a step back, by and large, especially the leading-edge customers that contribute to the AI-driven growth remain capacity-constrained both this year into the second half as well as well into 2027.

Sachin, Jean-Charles speaking, just to avoid any misunderstanding, when I mentioned the 8% to 12% organ growth for the full year, I was talking about the process solution portfolio. And just to give you some flavor, I confirm that we still have now ongoing interaction with customer. We are tracking our book-to-be ratio, order intake, order book, and end-end. What I try to tell you is we feel very confident for 2026 on Process Solution.

Thank you. We will take our next question. Your question comes from the line of James Quigley from Goldman Sachs. Please go ahead.

Your line is open. great thank you for taking my question i've got uh two please and i think both for for jc and first one uh no surprise of following up on the the ps stocking so you gave a fairly big if when you're thinking about the de-stocking potential impact in 2027 so um how much visibility do you have there over the customer's inventory is there a scenario where the higher inventory levels could actually be the new normal for those customers or could reverse or de-stock on a pretty uh slow cadence so that the headwind in 2027 is actually pretty minimal. And second of all, we've heard a lot in the last 18 months or so about the CapEx investments by your pharma customers in the US. Have you started to see any progress with respect to the planned significant capacity expansions? Presumably, as a consumables-focused portfolio, it will take a bit of time before it will flow through to Merck, but have you started any discussions or pitches or RFPs or anything like that with customers as they start to assess their CapEx plan, and how are you ensuring that Merck will get its fair share of that capacity as it comes online? Thank you.

So to your first question about the PS talking, I would say as of now, keep in mind that we're in July. We have limited visibility for for 2027. That said, what I can tell you is from a quality of our order, we are back to pre-COVID level in terms of order lead time. So we feel very comfortable with maybe inventory impact only in 2027, not in 2026. So your second question concerning capex by large pharma customer the answer is yes we have ongoing discussion with the large pharma customer actually i visited one few weeks ago and i have one important meeting which is scheduled in september with one of our largest customer i take the opportunity to mention back to the question of matthew that our largest customer is less than one to two percent of our total revenue in any business unit, could it process solution, advanced solution, or discovery solution. On CapEx, yes, we have exchange, yes, we have meetings, but it's too early to say to move forward with a clear view. We have ongoing discussion, and maybe my last comment, keep in mind that most of our portfolio is consumable driven, not equipment. So I expect that we'll see some benefit at some stage, but short-term, no. Great.

Thank you.

Thank you.

Thank you. We will take our next question. Your next question comes from Richard Vosser from JP Morgan. Please go ahead. Your line is open.

Hi. Thanks for taking my question. A couple, please. First of all, on the SECAM-5 ADC, there was some interesting data at ASCO in another tumor, pancreatic. So just thinking about the potential development in further indications, further tumors beyond third-line colorectal cancer, are you still looking for a partner to further increase investment in the product? How are you thinking about this going forward? Second question, sorry to belabor the point on process solutions, just second half, it It seems that you're pointing towards an underlying growth rate, something like 10 to 12, but we should deduct tariff returns of about 40 million from that. But are there any other headwinds that we should think about in the second half? And then just one final little bit on process solutions. The new market model you referenced, should we think about this actually allowing you to be more competitive, maybe, dare I say it, gain some market share against some of your competitors here. Is this something we should see or a little bit early for this? Thanks very much.

Hi, Richard. It's Danny. I'll take the first question on the pre-sem TCT, the SECAM-5. Yes, we are very proud of this first-in-class ADC with data presented at ASCO, first in colorectal cancer, that keeps on very encouraging. So you're right. At the CMD last year, we told you that we would be looking into the opportunity to partner this ADC. And indeed, we have had very good discussions with several interested parties over the past couple of months, I would say. What we also said at the CMD, I said that personally, including David, is that we will be super disciplined in allocating capital and concentrating around single assets with a lot of correlated risk. All in all, we concluded that we will not pursue partnering of pre-SMTCT at that point. We will continue developing the compound in third line metastatic colorectal cancer. This is a huge global phase three study, the meaningful opportunity for us, and we can do so on our own without compromising on our strategic imperative to, as I said, to reduce high capital intensity on correlated risk. When it comes to earlier lines of treatment, as well as the data that you mentioned for pancreatic cancer, we will, first of all, we are committed to extract the value of this compound, but we will do it in a stage-gated and, I would say, very disciplined manner. So we will need to see how the colorectal cancer study progressive, and then we will take additional decisions on combinations and other tumors. The data in pancreatic cancer is indeed positive. It says that the drug is active, still cautious, and we will update as data comes.

Richard, Jean-Charles speaking. So on your first question concerning process solution for H2, if you look h1 we are currently off to a very very good start and I said that for process solution for the full year we expect to be within the range of 8 to 12 percent and if you peel the onion and you go one level deeper in the high range of this guidance so if you do the math you know exactly what should be our organic growth for H2. And as of now, we don't see any headwinds or anticipated headwinds. Again, I would like to talk about normalization for H2. Concerning the process market model, the go-to market, overall, we are making good progress. We are completely done with the redesign. everything is set says incentive territory mapping and the feedback of our customer is extremely extremely positive I'm very pleased with where we stand today too early to say that we are more competitive or we are gaining market share but you should assume that I have a big smile and I'm very very happy where we stand thank you we will take our next question your next question comes from Charles Pittman King from Barclays please go ahead your line is open

hi thanks so much for taking my questions and two for me please firstly for Danny just thinking about Mavenclad and the US strategy and outlook I mean based on the IQVIA data it looks like broadly US prescription volumes of cladribin have actually been declining despite typical generic competition driving volumes up so just wondering if you can confirm that this is because of an intentional reduction in the marketing efforts of Merck, an increased share loss to competition, or illustrative of just a poor capture rate from IQVIA. And if you could just give us a few more details around how you're currently defending on price or volume and how you expect erosion to take place from August 27 when the European patent goes. And then just the second question, please, on electronic margins and DS&S. So just obviously noting that DS&S has been a bit lumpy i'm wondering if you could give us a bit more insight into how close we are to reaching a more normalized growth rate noting you're saying it's going to moderate in the second half of this year um just trying to think also what the impact has been on margins in 2q from the dsns project and how we should think about margins into 2h given 1h came in around 31 percent versus the four-year implied 29 to 30 percent implying that's greatly de-risked um thanks very much Hi, Charles.

It's Danny. I'll start with a question on Mavenclad. So, yeah, when it comes to Mavenclad in the U.S., Q2 sales were, I would say, almost on par with Q1, albeit the trend started weakening towards the end of the quarter, just as an FYI. Indeed, Mavenclad is showing slower generic erosion versus prior analogs, given the slower generic registration and limited penetration. We have two generics approved. However, more generics are lined up for approval in due course, two of them potentially entering the market, according to our assumptions, still in this quarter, in the third quarter. So as such, if we're talking about our ability to guide, we will stay with this guidance methodology. Now, when it comes, just as an FYI, when it comes to Mavenclad outside of the U.S., the growth has been very strong. Europe, for example, up 32% in Q2, very strong commercial execution, significant uptake of year one patients. So now, if we are talking about the full year, 2026, outside of the U.S., we expect a double digit growth for Mavenclad. Now, as you said, the loss of or the expiration of the regulatory exclusivity in Europe is expected in August 2027. We do have SBCs. However, I would strongly recommend that for modeling purposes, you would take the August 2027.

Hi, Charles. Thank you very much for your questions. Let me start with DS&S. So when you look at Q2, we actually saw DS&S contributing to semiconductor solutions growth, specifically due to a finalization of a large project in that quarter. As you know, it comes after a period of relatively weak performance, after which the growth for DS&S has normalized towards the end of last year. And as we reported last time, it was flat quarter over quarter in Q1. Our expectation for DS&S only moderately improves. So we see broadly stable outlook in the second half of this year compared to the second half of last year. Just as a reminder, DS&S has three components. One is the large projects business, which we manage opportunistically. So don't put it in your base. The second one is equipment for gas delivery, but also chemical delivery. And the third element is a recurring service model. On the margin question itself, we've done a good job in Q2 on managing our margin. We have committed to you that we will work on margin expansion quarter over quarter, year over year. We've delivered on that commitment. We saw around 200 basis points increase quarter over quarter from Q1. So it's a solid expansion. When you look at it, we stand at 28% EBITDA pre-margin in Q2, which is up significantly from the 15.1 in Q2 last year. I have to say it's a clean quarter, so don't account for any significant one-time effects in Q2 this year. However, as you remember, Q2 last year was suppressed due to mainly two one-time effects that we highlighted. On the reported EBITDA pre-margin, it's mildly supported, as Helena said, by FX backwinds of roughly 1%, and as well as the portfolio effect, which we've seen of around minus 6% from the divestment of surface solution. So overall, the EBITDA pre was up 87.5% organically year over year. So we see expanding margins. We continue to work on structural margin progression. And what's behind that is, of course, the portfolio effect from surface solutions with roughly 100 basis points annualized benefit. Second, from increased volumes, we see operational leverage. Third, we actively manage our cost position as highlighted earlier. And then last, but definitely not the least, we also see a positive mixed effect due to the strong demand driven by AI applications in the market, especially data center build-outs.

Thank you so much.

Thank you. We will take our next question. Your next question comes from Falco Friedrich from Deutsche Bank. Please go ahead. Your line is open.

Two questions, please. The first one is on the discovery solutions business within life science. Could you provide a bit more color on the end market trends outside of China and especially in the U.S. that you've witnessed in the second quarter? And my second question is on the semi-materials business again. Is there a positive inflection of this AI-related demand for your products that you're starting to notice? Thank you.

Falco, Jean-Charles speaking. So let me start with your question on life-sense related to discovery solution. So first of all, I would like to mention that we are agreeing now for four consecutive quarters. And back to the comment I made on the go-to market, we are now fully leveraging our multi-channel approach. What I mean by multi-channel approach, we are selling directly, we are using our e-commerce platform, we are also selling via dealers, and we see the benefit to have a better focus on this portfolio. Concerning the customer segments, all segments are improving, except academia, which remains quite soft, mainly in two countries, USA and China. That said, talking about China, I also mentioned a few weeks ago that we have just promoted a new head of China. This person reports to me. He's part of the executive team. And we are currently in the process to assessing what could we do in China strategically in order to make sure that we are going to win in this market.

If I could spend, let me take the AI-related question. So as we said earlier, we already participate today from AI-driven growth. When you look at the end market, overall data center build-outs continue to be strong. At the same time, consumer electronics remain a bit muted. So we are seeing the growth mainly coming from the AI-driven segment. And here, when you break it down, it's both memory as well as advanced logic processing. So that's not a new phenomenon, but definitely it's an ongoing driver. We've also updated our guidance, as Kai said earlier today, to 6% to 9% stage growth for the year to account for that demand growth. But again, I want to remind us to mind the capacity constraints of our customers, especially in the AI segment, which are already happening today and which we believe will extend well into the next year as well as we de-bottleneck as an industry.

Thank you. We will take our next question. The question comes from the line of Rajesh Kumar from HSBC. Please go ahead. Your line is open.

Hi, good afternoon. Thanks for taking my question. Just on the process solution, first half growth, the effects you have talked about, can you help us understand how that might have impacted or hampered your operating margins for the life sciences division? i.e. was the incremental cost of delivery significantly higher than normal or lower and the incremental drop-through margin so that when we are modeling our first half for 27, we are anchoring it off the right kind of run rate assumptions on drop-through margin. That's the first question. Second question, just on the book-to-build side, I know you have historically tracked the duration of order books. It might be a bit more subjective than objective in terms of numbers, but when you think of your book-to-build, are you seeing any meaningful duration changes in the order book, i.e. are the order lead times getting much longer or shorter compared to the prior quarter or long-term averages? Any color there would be much appreciated.

Hey, Kumar. Let me try to answer. The line was bad, so I'm not sure I catch your first question well. But to my understanding, it's about our profit margin evolution. so as you can imagine we are marching towards quality growth P&L where we want the bottom line to go faster than the top line however you need to keep in mind that we still face some absorption extra absorption link to the startup cost related to our region for region initiatives where we just open or we are in the process to open new manufacturing sites. And just to name a few, last year, we opened Blarney in Cork for process solution. And you should assume that now we are in the ramp-up phase, which means that we have more costs than last year. And in the near future, actually in October, we are going to open a new manufacturing site in Asia, in South Korea, Da Jong, again for bioprocessing. And And we are currently in the ramp-up phase as we speak. What I mean, we are adding headcounts without yet doing production. So it's extra cost for us. On top, based on the current performance of LabSense and process solution, we are also increasing on-purpose R&D investment. I mean, earlier in the call, Elena mentioned two new product launch. and HPLC green solvent for discovery, I could add the CLX-8 for LabWater and NN. So what we try to do, based on the current performance, we want to accelerate our innovation engine to make sure that we improve the way we supply our customer, the way we offer full solution in their workflow and so forth. So this is on your first question. Concerning the book-to-build structure, in the past, I mentioned that we rebuilt our book-to-build structure back to 2019, pre-COVID. We call it the Rainbow Report. What I can tell you is roughly 75% to 80% of our order has a lead time of one to six months. and this is exactly where we stand at the end of June 2026.

Very helpful. Thank you very much.

We will take our next question. Your next question comes from the line of Simon Baker from Rothschild & Co. Redburn. Please go ahead. Your line is open.

Thank you for taking my questions. Two, if I may, please. Firstly, a broader question on M&A and business development post the Biotechni deal. I just wonder if you could remind us about your capacity, focus, and appetite for transactions following the BiTechni deal. And then moving to semiconductor solutions, Kai, you mentioned metrology in your opening comments. And another comment specifically called out growth from AI-related metrology. I just wanted to see if you were seeing any effects from that. And then more broadly, I wonder if you could update us on the outlook for memory capacity. We've seen some early signs that maybe capacity from a very constrained position is beginning to expand. But you've probably got better oversight than anyone else really across that. So any update there would be really helpful.

Simon, let me take the M&A question. And of course, we are diligently working on biotechnics right now. It requires all focus on our side, preparation in line with what we can already prepare, what we're allowed to prepare, and working on the execution of that deal. This adds our top-notch focus. Then, of course, I shared in the strategy update our very strong intent to replenish our early phase pipeline in healthcare as an important strategy. And, of course, overall, we are and we continue to be committed in strengthening our growth drivers, electronics and life science overall. And that is what we work on. We shared with you in the financing of the current deal. I think you can do the math on what could go beyond that. But, of course, most importantly, we have to be able to execute on these deals diligently. Integration is key. So that gives you a frame of what we want to do, what we need to do, of course, of limited by what we are able to do at the end of the day. But it's a pretty clear and straightforward plan on our priorities. I will hand over for metrology inspection to Ben, as he will focus on this one.

Yeah, thank you very much, Kai. Thanks, Simon, for the question. So let me recap on metrology and inspection. So we acquired that capability, and metrology tools measure critical parameters in chip manufacturing, such as depth, depth height, and thickness, and they really enable real-time adjustments that improve process control. That becomes really important, especially in advanced semiconductor manufacturing, where quality and purity requirements get tighter and tighter, especially as we move towards advanced packaging. Inspection tools, on the other hand, detect a wide array of defect types, ensuring the highest quality standards as well. So together, these technologies really enhance manufacturing yields, reduce production costs, and accelerate time to market for the next generation of semiconductor innovation with our customers. So it's a relatively small business for us. The integration is going extremely well. As Kai and Helene mentioned earlier today, we just opened a new facility to be able to support our customers from a capacity but also from a capability point of view. Regarding memory, the reality today is there is a shortage of memory chips. Prices for advanced memory chips are very high. We expect this trend or the situation to continue at least until the second half of 2027. We work very hard day and night with our customers on de-bottlenecking this capacity, but it's not going to go away tomorrow.

Thanks so much.

Thank you. We will take our next question. And the question comes from Peter Spengler from DZ Bank. Please go ahead. Your line is open.

Thank you for taking my two questions. First, on electronics, you reported 17% organic growth in semiconductor solutions. but only 12% for electronics division overall.

What explains the 5% gap?

And the second question is on the bioprocessing market dynamics. A major American competitor reported low single-digit growth in bioprocessing for Q2 due to different reasons. Are you benefiting from this software competitor performance, or are you facing the same customer shipment delays? Thank you.

Yeah, thank you very much. Let me start with the electronics question. So when we recap the different businesses, semiconductor solutions grew 17%. Overall, as you rightly state, we are around 12% sales growth in electronics in Q2. What explains the difference is that Optronics is largely flat in this quarter.

Yeah, and concerning your question about the bioprocessing markets, look linked to the go-to-market reorganization we move back the customer in the center of what we do so we have increased the number of interaction we have with customer and why I will not comment on the competition what I can tell you is concerning Merck last sense and bioprocessing per se it's business as usual we don't see any variance or any any trend which are unnormal.

We would have time for one last question.

Thank you. Please stand by.

And your final question comes from the line of Oliver Metzger from OdaBHF. Please go ahead. Your line is open.

Good afternoon. Thanks for taking my questions. First one is on process solutions. You reflect the strong buying pattern APEC. You mentioned also some stocking effects from Middle East conflict but there are also some say improving fundamental demand. A second question for Ben on DS&S in H2 last year is you reported some ships of projects so would you describe the earlier when expected return to growth in Q2 as a result that some of these projects have come back or do you still see them as part of your pipeline and just where timing is unknown and the last one quickly on for Danny on fertility so it was stable development and yeah we saw due to gonna have some volatility over last quarters but can you share more insights what's currently holding the business back thank you.

Yeah, let me start with process solutions. So Jesse speaking. We still believe the market for bioprocess remains very attractive, growing 9 to 10 percent. And we believe that we are performing extremely well now for two quarters. And let me repeat what I said in terms of key trends, strong, healthy demand in the market, nice benefit from our go-to-market model where we improve our sales level and we move back and put back the customer in the center of what we do. And then we observe, as I said, special buyer pattern from few Asian customers, exceptional growth in China, and finally some one-time boost coming from order that we receive in order to improve the full workflow of our customers.

Hi, Oliver, it's Ben. I cover the DS&S question. So in Q2 2026, the main driver of the sales performance in DS&S is the finalization of one major large project that we already had in the pipeline. So that was already in execution. And in H2 this year, we expect to be roughly flat compared to H2 last year.

Oliver, it's Danny regarding fertility. As you remember, with the new structure, we are lumping fertility and endocrinology and sizing, but I will try to give you the separate colors. So with fertility and endocrinology, momentum improved, as Helena said, sequentially from minus five in Q1 to minus one in Q2. This was mainly driven by, I would say, the fading headwinds of the Gonal F related to pricing in the U.S. And as we told you before, we had a price reduction in Q2 last year, which started annualizing. We also see slight rebalancing of the channel mix in light of MFN or the TrumpRx channel that we initiated. However, MFN also gives us a better visibility on the price going forward. So this is one of the good things in this deal. Pergoveris, on the other hand, continued to grow double digits, 14% in Q2. This was slightly less than in prior quarters, mainly due to comps. So nothing to worry about here, but still double digit. In fact, we remain, I would say, super excited about the prospects for Pergoveris, including the recent China launch. and that's pretty much it together with it there is a sizen but as we said it was up in Q2 and with very tough comps but that's the color on fertility.

Thank you Oliver and thank you everyone Thank you Oliver Thank you everyone who participated in today's discussion and for your continued interest in work This concludes our Q2 26 running call.