Operator: Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on the First Quarter 2020. As a reminder, all participants will be in a listen-only mode. May I now hand you over to Constantin Fest, Head of Investor Relations, who will lead you through this conference? Please go ahead, sir.

Constantin Fest: Thank you, Emma. A very warm welcome to this Merck's Q1 2020 results call.

My name is Constantin Fest, Head of Investor Relations here at Merck. And I'm delighted to have today here with me also Stefan Oschmann, our Group's CEO; as well as Belén Garijo, our CEO of Healthcare; and Marcus Kuhnert, our Group CFO.

Stefan Oschmann: Thank you, Constantine. Also a warm welcome to everyone from my side. I hope that you and your family so safe and healthy.

And before going into the details of the quarter, I would like to remind you of our top priorities during this time of global crisis and what we at Merck are doing to overcome it. So, I'm now on slide five. Our number one priority is and remains the health and safety of our employees. At the same time, we have a special responsibility to maintain business continuity for the many patients, scientists, and customers that rely on us, be it in the context of delivering lifesaving medicines, tools for the development of vaccines, or materials enabling digitalization. Many of our employees are working under extraordinary circumstances whether they are on site in a lab, a production facility or working from home.

Thanks to their outstanding commitment and fantastic work, we are proud to be able to make important contributions to solving the challenges that lie in front of us all. In fact, our activities go far beyond our day-to-day business as summarized for you on this slide. Not only have we put in place dedicated teams in Life Science to leverage our products and know-how in the context of COVID-19, but we have also joined a global consortium of pharma and Life Science companies. Moreover, we provide research grants in the area of pandemic preparedness and we take on responsibility for the communities in which we operate. In terms of financial performance, this crisis will not leave us unaffected.

However, given our global presence, our diverse setup, and the essential character of our businesses, we are poised to fare much better than many others. Above all, crisis not only present challenges, but also opportunities and by acting wisely, calmly, and sensibly. We are confident to emerge stronger at the end as demonstrated time and time again in our 352-year history as a company. With that, let's go to slide number six for the highlights of the quarter. Overall, we had a strong start to the year.

Organic net sales growth was plus 7.6% in Q1, while EBITDA pre increased 14.5% organically. Taking into account slight currency tailwinds and significant first-time consolidation from Versum, reported sales and EBITDA pre increased by a remarkable 16.7% and 27.2% respectively.

Marcus Kuhnert: Thanks Stefan. And warm welcome also from my side. I am now on slide 10 with an overview of our key figures for the first quarter of 2020.

Mentioned by Stefan already, a very strong start to the year with a nicely leveraged P&L. Group net sales increased 16.7% to €4.37 billion in the first quarter translating an EBITDA pre growth of 27% and EPS pre growth of 32.7%. The financial and tax results did not contain any meaningful surprises and operating cash flow was solid. Net debt was slightly reduced compared to 2019 and our net debt to EBITDA pre ratio sequentially improved from 2.8 times to 2.6 times. On to slide 11, with a few comments on our reported earnings figures.

While EBITDA pre rose by around €250 million, EBIT increased even stronger by close to €340 million. The difference here is about equally driven by lower exceptional, including a book gain on the disposal of Allergopharma and lower amortization of purchased intangibles with amounts related to Versum more offset by Rebif amortization. Consequently, reported EPS more than doubled to €1.05 compared to €0.43 in Q1 last year. That said, let's move on to revenue of our business sector starting with Healthcare, for which I'm pleased to hand over Belén.

Belén Garijo: Thank you, Marcus.

Hello everyone and also a very warm welcome from my side. I go to slide number 12 to give you first an overall view of Healthcare business sector in Q1. And as you heard from Marcus and Stefan before, we were off to a very strong start to the year with significant organic sales growth of 15.3%, driven by all franchises with the exception of Fertility. We will speak about this later and further significant uptake of our new launches in particular Mavenclad. The NNI franchise grew organically by over 20% in Q1.

Now, while I will comment on the individual franchises in more detail in a minute, let me state that the overall net impact from COVID-19 has been relatively limited in Q1 in the low double-digit million euros. With significant drags downsides in Fertility, as we anticipate already when the crisis has started in China, partially compensated by some pool in effects in general medicine. However, we expect more pronounced drags from COVID-19 in the coming quarters, and in particular in Q2, and you will see this when Stefan shares our guidance and our assumptions later on in the presentation.

Marcus Kuhnert: Thanks Belén. And now on slide 18 with the review of Life Science.

Overall, Life Science had a solid quarter showing resilience in a challenging environment, thanks to its diversified portfolio of products. Q1 sales increased 5.6% organically driven by double digit growth in Process Solutions, and its lead development both research and applied, in turn mainly due to COVID-19 related effects on demand, which were in the low to mid double-digit million euros. From a regional perspective, in line with a saving of lockdowns around the globe, the growth in Asia slowed down significantly to flat versus low to mid-teens growth in the prior -- previous quarters, while Europe saw an initial impact with growth in the mid-single-digit compared to mid to high single-digits before. North America still remained on its high single-digit growth trajectory in Q1 and other regions were also largely unaffected. Not a big surprise.

In terms of customer segments, we saw a shift away from academia towards pharma and biotech as well as diagnostics and testing. In fact, demand from companies involved in COVID testing, vaccines and therapies search meaningfully. We are currently in the process of assessing how we can best meet this surging demand, especially in areas where capacities are limited. Further to the business units. Sales and process solutions were up 13.2% organically, mainly driven by downstream and single use, it's growth across all regions, and basically no visible effects from COVID-19.

Sales and Research Solutions were organically flat across 11 specialty chemicals was just offset by declines in other areas. Applied Solutions also saw flat organic growth on a combination of tough comps as well as COVID-19 related declines and lab water with basically very reduced accessibility to lab, which were compensated by growth in the rest of the portfolio. What is reassuring is that following a substantial slowdown of the business in China in the first half of the first quarter, we saw a meaningful recovery in the second half. Finally, on earnings. EBITDA pre came in at a pleasing €553 million, reflecting organic growth of 8.2% and such leveraged P&L and an increase in margin of 31.2%.

Moving on to a review of performance materials on slide number 19. PM took a strong leap forward with sales up 49% on a reported basis to €900 million. Organically however, sales declined by 5.4%, but this was more of -- more than offset by a small positive currency effect and a major boost from portfolio effects primarily reflecting the acquisition of Versum. In terms of business units, we are very pleased with the sound performance in Semiconductor Solutions, which posted strong organic sales growth of 8.7% and the clear signs of underlying market recovery as anticipated and a slight pull in effect from COVID-19. Underlying performance of the legacy Versum business was even better.

And I'm also delighted to report to you that the integration is well on track with initial synergies materializing as planned and the combined organization fully established slightly ahead of plan. Let me just also remind you briefly, that the entire effects of Versum also the inherent growth of that business is for the first nine months reported in the portfolio effect and it is not contributing to the Group organic or the PM organic growth rates as it is an M&A related effect. Moving over to Display Solutions, here sales were down 10.5% organically against still tough comps, but the decline was less pronounced compared to the second half of last year. COVID-19 marginally accelerates the underlying negative trajectory in the -- crystals and also had a negative impact on OLED. Similarly, the 9.1 organic sales decline in Surface Solutions is mainly attributable to COVID-19 related effects on the Automotive and Cosmetic industries as expected.

So overall, the strong performance of semis couldn't fully make up for the declines in Display and Surface on an organic basis, while portfolio effect boosted reported sales as explained before. On earnings, EBITDA pre came in at €286 million, up 48.3% on a reported basis, mainly due to first time consultation benefits from Versum, while the organic declines could be limited to minus 9% on diligent underlying cost management in the context of our Bright Future program. Further to the portfolio effect of roundabout €100 million on EBITDA pre and the corresponding margin of 32% on our acquired sales. Please note that this comes in spite of modest dilution from intermolecular and confirms our comments about robust underlying performance of Versum expected for 2020 on our last earnings call. On to slide number 20, with some short remarks on our balance sheet.

As you can see only little change compared to year in 2019. One thing, you've note is that cash and cash equivalents are up €750 million, reflecting a conscious decision to secure liquidity in light of the current crisis. In fact, taking into account the 2 billion syndicated bank loan, we currently have a comfortable liquidity of in excess of €3 billion. You already heard me saying earlier that our net financial debt was slightly reduced, implying a net debt to EBITDA pre ratio of 2.6 times at the end of the first quarter. Let's now take a closer look at the cash flow statement in the first quarter.

As you can see on slide number 21, operating cash flow slightly improved year-over-year to €516 million is higher earnings were largely eaten up by working capital outflows. The main driver behind this is a relatively higher buildup of receivables, mainly driven by Life Science and higher inventory levels partially impacted by COVID-19. Still, when looking on the balance sheet, the overall net working capital increase is still significantly below the increase of sales -- of net sales. CapEx was up as planned and the higher financing cash flow reflects the measures to secure liquidity as mentioned before. With that, let me hand back to Stefan.

Stefan Oschmann: Thanks Marcus. And I'm now on slide 23. So, in summary, we had a strong start to the year. The net impacts from COVID-19 in Q1 were limited and largely consistent with the assumptions laid out to you in March. However, the world has changed a lot since then.

In fact, the outbreak of COVID-19 has developed into a global pandemic with unprecedented consequences for the global economy and it forced lockdowns. Accordingly, we have updated our assumptions regarding the development of COVID-19 and are sharing them with you today. In particular, we now assume an impact across all regions, cases to peak in Q2 and the situation to ease only in the second half. Furthermore, we assume the pandemic crisis will last for the rest of the year and possibly beyond, suggesting healthcare systems will remain under stress. We also assume that some countries will have a less effective response than others, but and this is important, we do not assume a resurgence of a global outbreak.

This is scenario, we have to select some scenario to base our planning on, we are not claiming that we have ultimate wisdom in this context, but we wanted to make transparent that this is our planning base. Reality could be better, reality could be worse. The improved scenario depends -- would depend largely on the efforts of our industry or industries in accelerating the develop of treatment. Could -- if there is a scenario in which antivirals and other compounds would provide a significant progress and lower disease burden down to a level of maybe that Influenza would normally have that would clearly be an upside. We believe that the vaccine work is super important and our companies participating through Life Science in quite a few projects, but we do not assume that there will be availability of a vaccine for mass application in the near-term.

I'm going to slide 24. And in terms of the financial impact in our business, you will find the corresponding overview here. At Group level, we now anticipate COVID-19 to have a mid-single-digit effect on full-year sales, with a drop through of about 50% to 60% on EBIDA pre. In terms of quarterly facing, we expect the material impact in Q2 and visible drags, at least until Q3. Regarding our three business sectors, we believe Healthcare will see the highest absolute impact and Life Science the lowest, while Performance Materials will likely sit in between.

Further to Healthcare, we expect our fertility franchise to be impacted considerably and pull in effect seen in Q1, for example in Germany to weigh on our Q2 performance. Similarly, impact on the U.S. launch of Mavenclad will be mainly felt in Q2, but we assume further significant uptick beyond. In Life Science, Process Solutions should remain largely unaffected, whereas Research and Applied are set to get a bit worse before getting better, we assume at least partial recovery in the second half. Last, but not least in Performance Materials, our current expectations is that semiconductor solutions will see strong growth despite certain drags from COVID-19 in the coming quarters, while the anticipated decline in display will probably be somewhat accelerated and the impact of surface will be significant.

That said onto a brief reminder of the key earnings drivers for 2020 on slide 25. You're familiar with this from our March calls, so I will limit my comments to important changes. On the EBITDA, reducing factors, nothing new except for the updated effects from COVID-19 as outlined before, On the EBITDA supporting factors, we are implementing countermeasures across the board and have tightened up our cost management efforts especially in healthcare. Now pointing to not only a relative, but also an absolute year-over-year decrease in marketing and selling as well as R&D cost. With that let's move on to slide 26.

For the Group guidance, we expect growth net sales in 2020 in a range of €16.8 to €17.8 billion. EBITDA pre in a range of €4.35 to €4.85 billion and EPS pre in a range of €5.5 to €6.35. Compared to the outlook provided in March, we have reduced our organic growth assumptions for net sales and EBITDA pre in line with a greater impact from COVID-19 as detailed earlier. We now expect slight to moderate organic net sales growth and EBITDA pre to remain organically above stable. The anticipated portfolio effects from Versum are confirmed at a mid-single digit percentage tailwind for both net sales and EBITDA pre.

The anticipated FX effects on EBITDA pre are unchanged at zero to minus 3%, while the range for net sales has moved into our favor by one percentage point and now calls for plus one to minus. Finally, a brief comment on our business sector guidance on slide 27. You have noted that we are not providing specific ranges in terms of net sales and EBITDA pre as you used from -- used to from us at this point of the year. However, this has to be seen in the context of the special situation we're in. With that now on to your questions.

Emma, first question, please.

Operator: We will now take our first question from Matt Weston, Credit Suisse. Please go ahead, your line is open.

Matt Weston: Thank you very much. If I could ask one clarification and then two questions, please? Marcus, just to put it all in one place, can you just give us the divisional impact of COVID at the sales and the EBITDA level for Q1? I know you've given us a number of clues throughout the text, but just putting it all in one place would be extremely helpful? And then two questions.

Belén, thank you for all the information on MS market dynamics. The one thing that I'm just mindful of is that for cladribine every patient is new to brand, because it's such a short course with no repeat prescriptions. So does that mean that we would expect you to see a full impact of that high efficacy slowdown impacting the total franchise? Or you think that more modest slowdown you set out for the market in general, is more reasonable for clad and what have you seen in April? And then the second question, you mentioned all the activity in the Life Science industry around COVID vaccines and therapeutics, can you just help us understand how much spare capacity you have in different areas of process solutions? It sounds like it's something that you may struggle to capitalize on, but maybe I'm over interpreting your comments.

Marcus Kuhnert: Okay. Thank you for your questions, Matthew.

I start with the first one, divisional impact on COVID-19 from COVID-19 on Q1. As we have said, early in the presentation, the impact was very moderate in in the first quarter, to be a little bit more precise on this. So you can think about the overall impact in the mid, let's say upper mid double-digit million euro amount on sales. The biggest absolute amount actually was in Life Science. And here predominantly, Asia Pacific and SBU-wise, Applied Solutions and Research Solutions effected that is the reason why both of these SBus have been only flat in the quarterly comparison versus prior year.

The effects on Healthcare and on Performance Materials consequently have been very small, so both in the sales-wise in the low double-digit million euro and very low double-digit million euro amount. In Performance Materials, we had a slight positive as we already mentioned in semiconductor solutions, which was then overall compensated by a slight negative in display, predominantly OLED and a little bit more pronounced negative in surface solutions. On Healthcare, we also had overall net-net, a slight negative effect in the low double-digit million euros and that was overlaid or that was actually composed of two biggest single effects, but with different signs so to say. So we have another let's say low double-digit million plus from the mentioned inventory stocking or pull in effects that we have seen and that was compensated by the low to mid double-digit, negative low to mid double-digit million euro amount negative on fertility, what we have also mentioned already during the presentation. So this is by and large, the overview on the COVID-19 effect in Q1 on net sales.

Belén Garijo: So, Mathew, let me give you a bit more context on Mavenclad because the U.S. situation and the ex-U.S. situation is just slightly different. So, first of all, in Europe, we are well advanced and only a percentage -- a smaller percentage of the business is coming from new patients and the majority of the business -- of the sources of businesses is coming from switches. When we look at the U.S., actually the high efficacy sweet share of Mavenclad is growing at the faster rate than the one of S&P.

When you look at the IMS projected national claims weekly data up to almost early April, you see that we have achieved already a high efficacy sweet share of 10% and an oral sweet share of 18%. These together with the evolution of the SFR, which is a leading indicator that we measure internally, so, it's basically the number of weekly prescriptions that we get the view that we have on SRF is actually very, very positive before the COVID-19 crisis hit in the U.S. So those two views are actually indicating in our view that while we will be hit because of the lockdowns in many markets and we already saw that, it started in March in Germany and in the U.S. and actually later on in the UK. We see our main impact restricted to Q2 and as I mentioned we see this as a temporary effect.

Marcus Kuhnert: Matthew on to your Life Science related question, yes. Merck Life Science is a key player in this. We support the diagnostics industry both for PCR and serological diagnostics. I can -- we cannot name specific customer, but our customers include 8 of the top 10 IBD market leaders. Merck Life Science is also supplying reagents and other essential raw products for vaccine development.

You've read about our collaboration with the Jenner Institute that has laid the foundation for large scale production of its COVID-19 vaccine candidate and has reduced process development to two months from a previous span of six months to a year. So we've made a lot of progress. This and beyond our partnership with Jenner Institute, again we cannot name specifics, but we're supporting customers on more than 45 different vaccine programs across all vaccine platforms. And yes, we are experts in monoclonal antibody manufacturing with mature templates and the most comprehensive portfolios, high-quality products, services and testing for the bio pharmaceutical manufacturing. Again, I cannot name specifics, but we are supporting more than 20 COVID related therapeutics using monoclonal antibody plasma products and antivirus.

It is very difficult to make any precise forecast, when it comes to capacity. And I guess you've read Udit's interview, yes, it requires a heroic effort on the part of our people and just like anybody else, any other company that is -- that keeps on manufacturing we see a times some sort of disruption, if cases emerge, we've acted very, very swiftly toward this. It does require a very strict reprioritization. We're reprioritizing to support COVID-19. Specifically, it is difficult to give any forecasts or any guarantees, but everybody can be sure that we do everything that is humanly possible in this context.

Marcus Kuhnert: Matthew, one shot additional notes from my side. So having given you the sales impact, I think it is reasonable assumption to take the 50% to 60% flow through that we have given for the full year guidance also is an indication on the EBITDA, the respective EBITDA effect in Q1.

Matt Weston: Thank you very much.

Operator: Thank you. We will now take our next question from Simon Baker from Redburn.

Please go ahead. Your line is open.

Simon Baker: Thank you for taking my two questions. Firstly, on healthcare for Belén, I wonder if you could just give us an update on any changed timelines, start times for any key clinical trials, as a result of COVID-19 is expected to have any meaningful delay on your previously stated plans. And then secondly, moving over to performance materials, you did talk about some positive benefits there.

One of the things we've been hearing is, unsurprisingly been a significant uptick in demand for storage, and particularly Cloud Storage. I was wondering if you could give us any flavor for how much that's been impacting you so far and the expectations you have in the coming quarters. Thanks so much.

Belén Garijo: Thank you, Simon. So, first of all, I mentioned during the presentation, we have not seen any impact on any of our critical programs.

Of course, we have seen some side activation, delays in some of the smaller players or we have decided because of the situation of a particular country to slow down trials with lower strategic importance. So the answer to your question is, we don't have at this time major concerns with any of the critical programs evobrutinib as I mentioned, bintrafusp any of the bintrafusp and even the one that I mentioned for Bavencio the non-small cell lung cancer first line trial, which is going to be in a little bit later than expected it's not COVID related, but it's actually event driven. So no major delays.

Stefan Oschmann: Simon on to your semicon related question. So semicon business, let me start with maybe a couple of negatives.

Also semicon business is affected by the crisis and we have seen that many of our customers were affected by lockdowns and supply chain issues like some -- also logistics issues like so many other industries. But we have observed that the materials demand was very healthy in Q1. And we expect it to be very solid going into Q2 and furthermore. And longer term, we believe that as sort of -- we kind of see a global experiment in workings from home right now. And that has pushed the world's level of digitalization to a completely unprecedented degree, and it changes people's ways to work and consume and we think this is not just a temporary effect.

These containment measures have led to a significant increase in working from home, online shopping, online gaming, streaming data traffic, all with the corresponding need for more faster, more reliable data processing, storage and bandwidth. We have seen also in Q1, strong demand for PCs, tablets, et cetera, as well as a rising investment in service and data centers, and we believe this will have a longer lasting effect on consumers and enterprises. And we think that this will benefit the demand for semiconductor products, and hence our way for processing materials. We don't see such positive effects in the other business units in the end.

Simon Baker: Okay.

Thanks so much.

Operator: Thank you. We will now take our next question from Richard Vosser from JPMorgan. Please go ahead.

Richard Vosser: Hi.

Thanks for taking my question. Could we go back to Mavenclad and just I wondered if you could give us the split of the sales between North America and ex-North America. And just, if you could think about the net price development in North America, just how bad has developed, thanks for telling us about the small rebate reversal or whatever. But if you could give us some color there, that would be great? Then second question just on the Chinese implementation, the four plus seven, that I believe is being pushed back. How should we think about that coming through now for Concor, and whether you're aware of any other new waves from the Chinese being implemented maybe earlier than expected? And then final question just on Rebif.

If you could just give us -- you gave us some ideas about how that's benefiting, but do you continue to see that being more robust. How should we think about Rebif in the context of COVID-19?

Belén Garijo: Yeah. So hello, Richard, let me start with Mavenclad, if your question on price relates to Q1, we have no price impact all the business that you have seen is actually volume driven and there is no price effects. You know that we don't disclose sales by country. So I believe in previous conversations, Marcus indicated that the U.S.

became around 35%, more or less percent of our global sales this has continued to develop and the U.S. became our single biggest contributor to the global Mavenclad sales at this time. So that's four Mavenclad. Then on VVP look, we have limited visibility on the way this is going to unfold given the situation in China. So, we are expecting no changes versus our initial assumptions as you know Concor was in in round two.

Now, we have the price agreed and the implementation is on track. On Rebif, you have already seen that in Q1 I explained the drivers of Rebif in Q1. So, there is a slight preference by the physicians to whenever the patient needs therapy to start with a platform therapy. But we are expecting this also to be a temporary effect. And we are expecting as I mentioned before that the high efficacy market will recover both on those patients who will require more effective therapies.

And our guidance on Rebif for the year is not changing at all.

Stefan Oschmann: Maybe, maybe one shortcoming from my side to add to what Belén said, we do not, we have not factored into our guidance, any VPP effect beyond the currently Concor included in Wave 2. So nothing on top of that is included in the current guidance.

Marcus Kuhnert: So maybe I can add a couple of words as we have -- as we keep receiving media inquiries about the role of interferon beta in some of the global trials that are ongoing to test the products like Rebif for antiviral activity, or in addition to maybe the enhancement of the activity of other antivirals that you may have seen the so called Hong Kong trial lately that was conducted with interferon beta-1b. Experts assume that interferon beta-1a might have if it exists a higher antiviral activity, some of you that have been around as long as I have may remember that Rebif was initially, interferon beta was initially developed as an antiviral agent.

There are two major trials ongoing. There's the French insulin trial. We've heard some sort of anecdotal rumors about issues in recruitment, but we can't be sure about that. And there's the big multicenter WHO solidarity trial. We have not put in any sort of upside for this into our numbers that would be absolutely premature.

But Belén's organization is working very hard that if needed that we have sufficient capacity.

Richard Vosser: Thanks very much.

Operator: Thank you. We will now take our next question from a Casey from a Goldman Sachs. Please go ahead.

Unidentified Analyst: Hello, everyone. Thanks for taking my questions. This is Casey Erica from Goldman Sachs. I had two questions both on Mavenclad please. One, given that vaccinations are usually not recommended during treatment with immunosuppression agents, how are doctors thinking about prescribing Mavenclad given its implications for the adaptive immune system.

And isn't the pickup in demand for Mavenclad more a function of finding a vaccine for COVID rather than lockdown which is easy? And the second one, if I just do rough math on U.S. and ex-U.S., it looks like ex-U.S. has declined dramatically. Is that because you're now entering more than two years since launch in countries like Germany and you're finding it difficult to get new launches? Thank you.

Belén Garijo: Thank you for your question on your first question related to the base for vaccines, we believe Mavenclad is optimally positioned because of the selective immune reconstitution associated to Mavenclad.

Because as I mentioned before, there is a lack of continuous immunosuppression, transient preferential targeting of B and T lymphocytes and specifically moderate T cell reduction and minimal impact on the innate immunity, which are two factors specifically very important for viral defense. So, we are very positive on these -- in this respect. I invited you to see some of the guidance that has been published most recently by some experts in MS including preparation for vaccination. Then on ex-US market, yes we have seen some impact related to the lockdowns right. So, we see positive development of Mavenclad in -- we have seen positive development of Mavenclad, high efficacy market share in the EU 4 in Canada also in the U.S., despite the heat that the whole market has taken, we have been able to keep our market share in the U.S.

both in the oral and in the high efficacy dynamic segments is stable. So, we haven't lost market share at all. And this is very encouraging. The drop offs that we have seen in Germany are very, very, very low. Germany and the U.K., we are in the range of 5% drop off and even when we are developing additional data from the U.S., we are now estimating that the drop offs from Mavenclad will not rise from that from that level.

Unidentified Analyst: Thank you.

Belén Garijo: Is that answering your question? And was there any other element there.

Unidentified Analyst: That answers. Thank you. No, all good.

Belén Garijo: Thank you. Thank you.

Operator: Thank you. We will now take our next question Luisa Hector from Berenberg. Please go ahead.

Your line is open.

Luisa Hector: Hello, it's Luisa Hector at Berenberg. Thanks for taking my questions. I wanted to learn whether you could comment using evobrutinib as an example, at Phase III, you said you're starting to move forward as planned. Clearly, oral is helpful here in the current environment, but have you had to adapt the trial design for the ongoing social distancing measures, in terms of patient recruitment, baseline scams, et cetera.

And on Versum, you seem confident you can integrate as planned. Can you confirm that there have been no delays through the social distancing and that you're on track for your synergy targets? And perhaps this situation allows you to identify some new savings. Just wondered about that. And then final quick one, just on the receivable reflect the increase in working capital, particularly in life science. Just wanted to check that you are confident in payments? Thank you.

Marcus Kuhnert: So Luisa, thank you for your questions. I start with the Versum question. So actually, the closing was, as you will remember, in October 2019. And similar to what we have done with Sigma-Aldrich, a couple of years ago. We started relatively early even before closing with significant pace with the integration planning.

And the tangible consequences out of that was that immediately after closing, we were already able to start with full steam going into the integration. What does it mean? That means that we were able to have a very, very important integration meeting scheduled with the entire team of Versum and legacy Merck semiconductors, several of these important team meetings late 2019 and early 2020. So that's a very important foundation relevant for the ongoing integration now was late at a point in time before the corona crisis hit us and before all the strict lockdown measures came into place. So that means actually, that we are fully on track regarding the realization of synergies on the one hand and also regarding the integration of Versum. Next important milestone for example, will be by the end of this month, that we are communicating now the entire new organization so down to the very granular levels of our organization.

We have further detailed and outline synergy plans and we are fully on track. I think Stefan wants to take…

Stefan Oschmann: Regarding to the cash collection.

Marcus Kuhnert: Okay, cash collection. Yeah. So this is actually Louisa nothing, which keeps us up at night at the moment.

You know that Stefan and myself that we have a very close eye on working capital development overall. However, I must say in the current crisis, it turns out to be beneficial at the one other time or area when we have a little bit higher inventories in order to continue to be able to deliver to our customers, and also to keep service levels on a high level. And a slight increase in accounts receivable, I think is also quite normal. In those critical times, especially with smaller customers and especially in regions and countries, which are facing relatively strict lockdown measures? I can tell you, on the other hand, that this is very, very roughly and diligently monitored and there's currently nothing what we would see that goes completely in the wrong direction. With that, over to Stefan.

Stefan Oschmann: Yes. And you -- Luisa asked a question about new savings, if I understood that correctly. We have in our current forecast, we have built in savings that we have modeled based on the lockdown scenarios, based on the fact that currently there is very simple there is no travel, there are no events and many other things in our sales force in all of the businesses and mostly reaching out to their customers through digital means. We have modeled that. We will be watching the months as they come in.

If we see further savings potential we would obviously use that to protect the bottom line.

Luisa Hector: So Luisa, on your evobrutinib prior -- first of all, remember that evobrutinib is not an immunosuppressant is considered an immunomodulator based on sedative mechanism of action. Based on the safety data that we have today with RMS patients exposed for over two years and more than 1,200 patients overall, evo has not been associated with lymphopenia or T-cell depletion or an increase of either bacterial or viral infection. Obviously, in the current context of the pandemic, we are developing guidance to the side regarding surveillance for COVID specific signs and symptoms, but the trial is actually performing to expectations. And I would say, in this context with your expectations, first of all, because a significant number of sites in terms of site activation were moved from the previous design directly to the new study with a very fast track, ethical committee approval.

So site activation has been very, very good. We haven't faced any delays and we will continue to work very closely with the site to ensure the safety of the patients, and we will, of course, be vigilant on any potential guidelines that may be released by the regulatory agencies regarding the conduct of clinical trials in the context of this pandemic, but so far, so good.

Operator: Thank you. We will now take our next question from Michael Leuchten from UBS. Please go ahead.

The line is open. Michael Leuchten : Thank you very much. Two questions, please. One about your guidance at the upper end of the range, there is a margin increase implied in that guidance, if I do my numbers right. So I was wondering if you could talk about that is that cost efficiencies that despite the disruption this year allows you to include that in your range of outcomes? Or is it mix effect? Your thoughts would be appreciated.

And so going back to Mavenclad, if I think about the timing of the lockdowns in Europe in the quarter, the impact of Mavenclad seems to have happened quite risky, quite quickly, certainly compared to other high efficacy agents out there. So just interested in your thoughts, why it might hit that quickly. And then I guess on the other side, do you also expected to reverse quicker than the impact might have been on competitive products as we come out here to side? Thank you.

Belén Garijo: So let me start by Mavenclad. Yes.

I mean, I have shown you the way the market in the U.S. has evolved, and I can tell you the U.S. really -- has been really impacted since very early on pandemia. I think the majority, the biggest impact we have seen in the U.K. where we have a very strong position and a very high market share in the high efficacy dynamic and followed by signing but in Germany but contrary to the U.S., in which the telemedicine or neurologists has not been so widely accepted, the teams in Europe have been permanently in contact through digital means with the customers and we are confident on a firm recovery of the brand..

Stefan Oschmann: Can I say one word about the lockdown impact and that is something that is also being discussed in the overall context of managing the pandemic and quite a few conspiracy theories have reported that actually the lockdown had no effect, because infections went down already prior to the lockdown? Quite a few companies, including ours and many other institutions went into a home office situation significantly before lockdowns were declared. The same happened on the side of clinics and of physician practices and many people stayed at home. So when -- if you model the impact of that you should take into account that there was a high degree effectively over lockdown before lockdown was cleared in many countries.

Marcus Kuhnert: Yes. And to your question, Michelle, and so, let's say, if and I understand you have taken the very upper points of our guidance.

I mean, if this very much best, best, best case scenario would occur, we are almost, I would say, almost in the pre-COVID crisis scenario. And then I've just made the math quickly 27.2% EBITDA margin is indeed something, which we would expect to achieve in such kind of scenario, yes. This is basically on the level of the first quarter and also on the level of year end 2019. And that is definitely then if we would be able to reach €17.8 billion in sales, we should cross the 27% EBITDA margin, that's for sure. Michael Leuchten : Thank you.

Operator: Thank you. We will now take next question from Florent Cespedes from Société Générale. Please go ahead.

Florent Cespedes: Good afternoon. Thank you everyone taking my question.

Two quick ones for Belén. First, on Fertility, how do you see the magnitude of the decline in Q2 for this business? And how do you see the, let's say, the shape of the recovery? Or in other words, do you believe that you should be back to the pre-COVID-19 crisis towards the end of the year or maybe more in 2021? And my second question is on avelumab, the trial which is delayed to 2021. You said during your presentation that you would give us a little more color on that during Q&A, so I'm asking the questions, can you give us please a little bit more color on that. Thank you.

Belén Garijo: Thank you, Florent.

So, we -- I mean, fertility franchise is starting to see a nice recovery in China. We need not to forget that China is a major driver, but fertility is also solid in Europe and in the U.S. So, as we see recovery in China we are also expecting an accelerated recovery in Europe, mainly in the private segment. Remember, the patients are waiting and the private clinics are, of course, eager to resume the business. So we are expecting to see impact in Q2.

We have a great position versus the competition and you know, the facing, the facing, the facing of the business is going to be -- China will help Q2, Europe and the U.S. will help Q3 and Q4 together with a stronger China. So we are confident on what we have communicated in terms of guidance for the rest of the year. And we are really confident on our capabilities versus the key competitions, our ability to connect to digital channels which we have already developed before the crisis. And my bet is that we are going to recover strongly from this crisis in fertility.

Now, on the non-small cell lung cancer trials, if you got what I said is that we have a light delay which is not related to COVID-19, but it's actually the event driven. So there is little we can do, but rather complete the trial once we hit the number of events that are required to deliver on this study. And we will update these in the clinical trials that go very, very soon is going to be early 2021 surely, because during the presentation I said early 2020 and perhaps I confuse some people.

Florent Cespedes: Okay. So, Belén, which means that the slight delay, which should be a trial readout for early 2021?

Belén Garijo: It’s a delay of more or a less four to six months.

Florent Cespedes: Okay. Good. Thank you very much.

Operator: Thank you. We will now take our next question from Falko Fredricks from Deutsche Bank.

Please go ahead.

Falko Fredricks: Good afternoon. Thanks for taking my questions. I would have a two and a half questions actually. So firstly, could you share some more color on the speed of recovery you currently see in China? And how fast the demand is recovering across your three segments? And then secondly, now that we have seen initial data from a competing BTK inhibitor in MS and your competitor has been very vocal on the benefits of a brain penetrating drug in MS.

Can you talk to your view on the importance of brain penetration? And is there evidence to suggest evobrutinib can penetrate the brain? And then following on to that, how do you view evobrutinib’s competitive positioning in light of Sanofi data?
Belén Garijo : Good. So, let me start by recovery in China, look, this is slightly determined by franchise. So oncology is recovering slightly, fertility is ramping up and general medicine is solid. So we are anticipating a catch up that obviously will be much faster than in the European territories for example. Yes, on your BTK question, Falko, Sanofi has indeed been very vocal, but we haven't seen any data to more deposition in that that they are making up their own mitigate.

Keep in mind that our evobrutinib has been the first BTK to show proof of confidence in our RMS and we are really characterizing the efficacy of this compounds as a MAP, monoclonal antibody like clinical efficacy over two years with a very rapid onset of action. And today is the only BTK inhibitor in MS with this kind of data and characterized with more than 1,200 patients for the safety profile. In terms of the penetration of the BBB, as we mentioned before, we believe both assets evobrutinib and Sanofi’s BTK are capable of crossing BBB and demonstrated CNS penetration. As you can imagine with also done our own experiments because this is very easy to actually synthesize in the lab. So, the BTK occupancy by evobrutinib has been observed in the brain of both healthy animals and in animal models.

And yes, there are variabilities in the preclinical experiments that have been conducted today. And hence since we don't have head-to-head data, I want to stay prudent, but definitely our molecule process BBB and we have animal data to support that. However, the clinical relevance of pain -- of brain penetration has yet to be proven for BTKi in MS. And we remain very confident in our demonstrated clinical efficacy based on a large placebo controlled trial, which now has offered two years of follow-up.

Falko Fredricks: Okay.

Thanks very much.

Belén Garijo: Thank you.

Operator: Thank you. We will now take our next question from Emily Field from Barclays. Please go ahead.

Emily Field : Hi, thank you. Just on Mavenclad very quickly. Could you quantify exactly what the amount was of the fourth quarter provision? And then just after backing that out how U.S. growth was trending in January and February before the impact of coronavirus? And then also, again, kind of on the U.S. business within healthcare, have you factored into your guidance any mix shift in terms of payer coverage? And if you could perhaps just discuss any exposure you may have to any growth in Medicaid, as we're entering into this period of very high unemployment? And then just I know this was asked earlier, but just for Fertility specifically, is that more exposed to -- if there could be a protected macroeconomic downturn and just if you have any examples on perhaps if that business fared any differently than the rest of your business in 2008, 2009? Thank you.

Belén Garijo: From -- Yes. That is Emily, right?

Constantin Fest: Yes.

Belén Garijo: Hi, Emily. So, the provisioning in Q4 is around €5 million. Then on the Fertility, yes, of course, we have factored -- we have taken into consideration the current environment, how much is the impact of the economic recession on our Fertility business, it is still to be seen.

We believe that those patients -- I mean, we have always seen that this market is not such a price-sensitive market. And eventually, in some countries, we have seen low price clinics emerging. And actually, we haven't seen this business making a big difference. Our exposure to Medicaid is basically negligible in the U.S. And in the rest of Europe we are counting that it will have some impact, not a major impact

Stefan Oschmann: And Emily, since I'm probably the longest serving person at Merck around the table, I was not here in 2008, but I have actually looked into the Fertility numbers in 2008.

What are the two driving forces behind the impact right now is on the one hand, the lockdown i.e. the closure of Fertility clinics, that's a mechanical question Belén, was explaining that. And the second one -- the second item would be consumer sentiment. In 2008, we saw a steep decline in the Fertility business and we saw a V-shaped recovery as to whether this is fully applicable to this crisis, difficult to tell, but it's possible.

Belén Garijo: So, let me also…

Emily Field: Thank you very much.

That's helpful.

Belén Garijo: I can -- Emily, you have a question on the Mavenclad U.S. ramp up, early you are referring to the IMS, NPA, TRx data, and I think you have to be cautious on interpreting this data because remember that Mavenclad has a unique pathology. So what we have asked IMS to do is to give us a custom view, which is trending extremely nicely and for the prescriptions and that is normalizing to the dosing schedule of Mavenclad. Just to explain you a bit better.

When you go for -- imagine an SP1, you will get a prescription every month, right? For Mavenclad you will two prescriptions or one prescription per patient for the whole year. So you have to -- because this is the dosing schedule, right of Mavenclad. So you have to adjust for that. And this is why it's only the custom view that will give you that reality and the comparable reality versus other agents. Do you -- is that clear?

Emily Field: Yes.

That's very helpful. Thank you.

Belén Garijo: Yes. And the IR team can give you the data offline if you want to see those, if you don't have those easily accessible.

Operator: Thank you.

We will now take our next question from Daniel Wendorff from Commerzbank. Please go ahead.

Daniel Wendorff: Yes. Hi, good afternoon, and thanks for taking my questions and three for me. And the first one is on your Research Solutions and Applied Solutions performance during the COVID crisis.

Maybe you can talk a bit more about the positive effect, you saw, you still see from the crisis on some of your businesses, and you mentioned efforts during your presentation to meet the demand there for some product. Maybe you can talk a bit more about that? And how we should see this effect in Q2 and Q3? And my second question would be on the performance in China and life science in Q1. And can you remind us again, how that was? And maybe, if you're already able to tell this a few words on how this improved in April? And my last question would be on your -- a follow-up question on your guidance. And you talk now a bit about, what needs to happen to reach the high-end of adjusted EBITDA guidance? And maybe you can talk a bit more about the scenario underlying the low end of the adjusted EBITDA guidance here for 2020? Thank you.

Stefan Oschmann: Marcus will address the guidance related question.

On the life science, let me try to combine this. So, what is it that we would be doing in this COVID-19 crisis? So, we are providing research tools and reagents for instance for RNA purification, RT-PCR, it RT-qPCR, immune essay and supporting reagents that are suitable for SARs code to be to work on products reagents for diagnostics, the two main diagnostics platforms like PCR and serology on PCR quantity in procreate oligo primers probes. We do high flow membranes, beads, antibodies for serology, tests. On therapy manufacturing products cell culture and media clarification, DNA digestion, Tangential Flow Filtration, chromatography, sterile filtration, fermentation, bioreactors and Final Fill. And on vaccine development, its discovery and development, this invention is proteases peptides, peptide libraries, antibodies and Amicon, MILLIPLEX, essays, lasers.

And in manufacturing, it's very similar to the therapy manufacturing -- manufacturing products. So the upsides and downsides in process, process is obviously less affected due to the long term supply of bioprocessing. A good portion of the bioprocessing portfolio is sustained by the ongoing treatment of chronic diseases. And there's increased demand in areas of COVID-19 therapy and vaccine development increased research. The supply products for testing like buffers enzymes reagents, however, academia is one of the largest customer segments and as a result, his portfolio is impacted by the demand reduction as lab work in many universities that are not COVID related has come to a halt.

Applied is mostly in the diagnostic space, we see continued demand for RNA extraction kits and Lab Water system installs, repairs. However, industrial testing is also down. And this reduces demand for many of the products supplied by this portfolio. We have seen in China, in approximately six to eight weeks, we began to see order returns to levels that we were used to that is an important factor for us to model -- to model the future and that results in us assuming that Applied and Research will be doing much better in the second half.

Daniel Wendorff: The guide question?

Marcus Kuhnert: Yeah.

So I take the guidance question. So as Stefan outlined in the presentation, we are obviously preparing several scenarios in order. Basically, to shed a little bit light on a potential or shall I say, bandwidth of outcomes that COVID-19 could -- what this could mean to our business going forward. And as Stefan said, so the guidance is actually based on a kind of base case scenario, which we also at the same time consider to be somewhat from today's perspective and realistic outlook, what we currently see for 2020 Of course, I mean, the lower end of the guidance would cover more the worst case scenario. And while I cannot share detailed, very detailed assumptions with you, I would just want to give you a heads up on certain things that would have to happen in order to bring us really, to the lower very lower end of our current guidance corridor.

So first of all, it has also been outlined, we believe that the second quarter will get quite a hit from the COVID-19 crisis. So this will be a rather weaker quarter to say very clearly. And then from Q2, or Q3 and q4 onwards, we actually project some recovery into our numbers that lead us to the current guidance, of course, and you have seen this in our set of assumptions, if we would enter into a big global second wave of infections, and another set of very strict lockdown measures across the three for us very, very important big regions Europe, U.S. and Asia-Pacific. We would be actually south of the base case scenario, because then it is likely that we would not see any recovery or no meaningful recovery in Fertility and also no improved dynamics in Mavenclad in the second half of the year.

We would not see recovery of Applied Solutions and Research Solutions which are affected in Q1 and Q2, but most likely not so much anymore, even show some catch-up effects in Q3 and Q4. And that would also endanger the current assumption of an ongoing, very robust business in Process Solutions and in Semiconductor Solutions, which are both meant, actually, in the current base case scenario to support us in to compensate some of the shortfalls that we will experiencing in the more affected areas of our business. I hope Daniel this helps.

Daniel Wendorff: Absolutely. Thank you.

Operator: Thank you. We will now take our next question from Wimal Kapadia from Bernstein. Please go ahead.

Wimal Kapadia: Great. Thank you very much for taking my question.

Wimal Kapadia from Bernstein. If I can just push a little bit more on Mavenclad. Can I just ask how much of your current revenues around April, May, is actually coming from New Mavenclad quotations or versus returning customers for year or two a drug. Just curious, given any previous comments and low monitoring burden, easy administration, et cetera? And then tied to this, I know it's very difficult given the uncertainties, but you've done it in the past. Any, any comments on expectations or maybe even arrange for 2020? I think would be would be would be quite helpful.

My second question is just on Surface Solutions. And I appreciate things have changed since the global financial crisis. But when I look back at how pigments performed back then, we saw a couple of years of low double digit declines and then a very nice rebound thereafter. Could you provide any color on how you think about the outlook, now versus period -- versus that period given we already saw a 9% decline in 1Q? Should we expect a larger and more sustained and the performance, any comments will be great? And then Belén, since you're on the call, just want to get your thoughts on -- on the changing long landscape. You know, clearly there is a lot of activity in first line, non-small cell lung cancer.

So I'm just curious to hear your thoughts on how this changing landscape will be factored into the beta trail programs moving forward? Thank you very much.

Stefan Oschmann: Let me start -- Wimal let me start with your question on Surface Solutions. It was -- it wasn't entirely for you at the crystal about Surface Solutions, not about Semicon Solutions that is correct?

Wimal Kapadia: Surface solutions, that's right.

Stefan Oschmann: Thank you. Thank you, Wimal.

So yes for 2008 crisis is comparable in a certain way. On the other hand, it's not in 2008, we saw exactly what you -- what you described, but then this was followed by a strong stimulus package specifically geared toward the automotive industry in quite -- in quite a few -- in quite a few major countries so the recovery was pretty fast. Secondly, the other big industry that we rely on is the cosmetics industry. And the cosmetics industry is very much affected by lockdown by people wearing masks, et cetera. And that also that didn't happen in 2008.

What we should note is that, if I remember the numbers correctly, Marcus correct me, if I say something wrong. Surface Solutions is roughly 14% of performance materials revenues and performance materials is roughly -- roughly 20% of MAX revenues so we're talking about an impact on 3% of MAX revenues and it's obviously a somewhat lower margin business compared to the other. So I don't think we should focus so much on this.

Belén Garijo: So let me let me go back to your main class question, Wimal. And just to clarify, so you're talking about new stocks versus continuation, right?

Wimal Kapadia: That's correct.

Yeah.

Belén Garijo: So with COVID-19 hit us has been on -- right as much as the market, because we haven't lost any market share in the high efficacy dynamic markets or in the order high efficacy markets in the U.S., which is a very good time, right. Obviously, the newest starts are -- so the higher the reliance on the new starts, the higher has been the impact. On the continuation, we continue to see a very good trajectory. And as I mentioned before, based on the data we have from Germany and the U.K.

even a bit less than 5% of the patients have actually discontinued which is actually very encouraging for their recovery. So, we are confident that after a bad Q2, we are going to recover ground on continue the accelerated growth that we have seen in previous corporate -- in previous quarters. That's what mainly. Then -- and that covers the expectations for 2020. I am not going to give you any specific numbers as you know, but definitely we don't see any major influence of the of the COVID crisis at this time on the guidance, we have given a big sales, right.

On the non-small cell lung cancer landscape. Yes, obviously, we are very closely following everything that that is happening there. Is this change in their perspective for Bintrafusp? No. So this is our main focus, we are right now on progressing with our trials both in first line in combination with chemotherapy and then we are also go -- we have also gone to covering unresectable stage stream non-small cell lung cancer vessels. So, we have a very extensive program and you will see more data on the -- on the whole scene and the way we see the competitive environment evolving in the R&D update call.

So if the trials deliver actually, the evolution of the non-small cell lung cancer market will be an opportunity in terms of combination and an increasing number of patients being treated with new glasses.

Constantin Fest: Emma, I think we have time for one more additional question, please.

Operator: Perfect. We will now take our final question from David Evans from Kepler Cheuvreux. Please go ahead.

David Evans: Thanks. Thanks very much. It's David Evans from Kepler Cheuvreux. So just on your on your 15% healthcare sales growth in Q1, you said the net impact for COVID is quite small. So I was just wondering could you -- is there any way you can quantify the other phasing tender the benefits that that you got in Q1 within healthcare? I'm trying to get to underlying healthcare sales, which were still very strong and so, if so, within general medicine, are there any brands that you would pick out and seeing really, genuinely underlying acceleration in demand? And then second, -- sorry, maybe it's one on -- one final question on Fertility, you talk about catch up effects as lockdowns, ease.

So, specifically that that means a genuine pickup in sales in 2021 not just later in 2020? Thanks very much.

Belén Garijo: So, let me repeat what I said at the beginning, our growth is very solid and all the franchises with the exception of Fertility are growing. In the NNI franchise, the main growth driver has been Mavenclad. Of course, they tender facing for rabies has helped repeats decline being less pronounced than in previous quarters. But all in all our business has been extremely solid.

And this has been as I mentioned before, driven by strong NII, a strong oncology and a strong general medicine that grew by almost 10%. On Fertility, the acceleration goal to 2021 perhaps, we don't see that happening is difficult to predict, but we see already it is too early to see to say, but based on what we see in China, right, we are expecting to see clinics be opening already during Q2. So, and this happened already for China in Q1, 90% of Chinese centers reopened already at review capacity -- at reduced capacity not only in China or in also in other APAC clinics and in Europe the clinics are reopening one and following the guidance and the recommendations of the European Society for human reproductive procedures. So as we see that, I think that the majority of the ground will recovering in 2020. Did I answer your questions?

David Evans: Yes, perfect.

Thanks.

Constantin Fest: Happy to hand over to Stefan then for closing this call.

Stefan Oschmann: Thank you. Thank you very much, Constantin. So just thank you for, for discussing with us these challenging times.

I would like to thank our people for their outstanding commitment and they're fantastic work and we have to solve many challenges. You’ve seen what our priorities are to protect the safety and health of our employees and their family. I think we've done a fairly decent job on this. Out of roughly 60,000 employees, we've had very few cases which results in very few disruptions in our manufacturing activities. Our second priority is business continuity and early business recovery.

I hope we gave you a good overview of what we're doing in that -- in that respect. And our third priority is to be a very, very positive force in managing this crisis. We also had quite some, some discussion about this we are getting a lot of recognition. We've been seeing that the image of the pharmaceutical and biotech and other industries has improved largely despite some announcements from yesterday. But we feel that society recognizes that companies like ours are assets that are extremely important for the safety and health of our society worldwide, and we feel an even stronger sense of purpose than ever before.

Thank you very much.

Constantin Fest: Bye, bye.

Operator: Ladies and gentlemen, that will conclude today's conference and you may now all disconnect.