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Merck KGaA sees sales rise but braces for profits to fall over next two years

Payments related to job cuts across company to affect pharma firm’s future financial performance

Merck KGaA has posted healthy revenue growth of 10.6 per cent for 2011 but faces a less positive outlook over the next two years.

Despite breaking the €10bn for the first time in total annual sales, mainly due to its 2010 acquisition of Millipore, costs related to job cuts and other restructuring efforts will bring profits down for 2012 and 2013.

The German company expects all divisions to be affected by the job cuts, including its pharmaceuticals arm Merck Serono, as the company tries to cope with an evolving healthcare market and increased competition for key products, including multiple sclerosis (MS) drug Rebif.

Although revenues were up in 2011 the company's net profits fell by 2.3 per cent to €617.5m for the year, due to increased expenses, such as charges related to its large-scale biotech production plant currently being built at the Merck Serono Biotech Center in Switzerland and increased R&D-related costs.

Driving the company's improved sales performance was the acquisition of what is now the company's life sciences research division, Millipore Corporation, which brought in revenues of €2.39bn.

Sales across all the company's division are expected to "increase slightly" over the next two years, Merck said, due to increasing growth of its colorectal cancer treatment Erbitux (cetuximab) and consumer health products such as Bion and KyttaFlexagil.

But this is unlikely to counter the increased costs the company will face in the period, although Merck does expect to benefit long-term from the efficiency measures.

Merck's chairman Karl-Ludwig Kley said the company had delivered "a good operational result in a challenging year".

“We managed to deliver on our profitability guidance despite facing a softening economy and significant one-time charges. However, we recognise that the competitive and market pressures we face in our businesses are likely to increase over the next few years. As a result, we recently initiated an efficiency program across all businesses and regions to enable us to address our inefficiencies and free up resources to invest in promising growth markets.”

7th March 2012

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