Operator: Good day and welcome to the Merck Quarter 2021 Analyst Telco Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Constantin Fest. Please go ahead.

Constantin Fest: Dear ladies and gentlemen a very warm welcome from my side.

My name is Constantin Fest. I'm here the head of Investor Relations at Merck. And I'm delighted to have with me here today for the presentation but also for the Q&A. Belén Garijo; CEO of the Merck Group, as well as Marcus Kuhnert CFO of the Group. For the Q&A part of this call, Peter Guenter, CEO of Health Care and Kai Beckmann, CEO of Electronics will also join to answer all questions on Health Care and Electronics.

Matthias Heinzel, our new CEO of Life Science will join this call for a brief introduction while Andrew Bulpin in charge of Life Science process solutions will be available for your detailed questions on Life Science and Process Solutions in particular.

Belén Garijo: Thank you, Constantin, and a very warm welcome, everyone. Before going into the details of our quarterly results, let me make some general remarks. First, starting by sharing that is a real pleasure and a great honor to be here on my first earnings call as the CEO of Merck. I am truly excited to lead the company forward.

And it goes without saying that my aspiration is to secure an even more successful future for Merck. We have a strong vision at Merck that is widely shared by all our leaders, and of course, by the executive board of the company. This is to accelerate our leadership in science and technology across all our sectors, globalize our business even more and mobilize for growth everywhere. Over the coming weeks, together with my colleagues on the executive board and our global teams, we will further detail and complete our study and prepare to make important decisions starting by capital allocation decisions to ensure long term profitable growth and sustainable value creation. Based on the several meetings I've had with many of you in recent past, I am acutely aware of your interest, to learn more about our plans and our priorities.

And we will dedicate our entire capital markets day in September to share and to discuss these plans with all of you. Your feedback is very important to us. And I strongly believe in the mutual benefit of further strengthening our connection with the capital markets, maintaining a spirit of transparency, clarity and a very honest dialogue. And indeed, in this context, I would like to make two points; first, on my pharma background, a question that I frequently receive, you can expect that I say a business champion for all our three sectors. Since I joined the Executive board in 2015, I have been deeply involved in shaping the transformation agenda of the group, which provided me with the opportunity to address the strategic challenges and the strengths of all our businesses.

Second, I believe in deep content debate, best led by their respective business owners and therefore, I will sit in every quarter recall and be joined by all my colleagues on the on the executive board from now on. This will give you the opportunity to hear first-hand information from our business leaders.

Marcus Kuhnert: Many thanks Belén, and welcome also from my side. And now on slide nine of the presentation starting with an overview of our key figures for the first quarter. As mentioned by Belén already our results show a very strong start to the year.

Despite significant currency headwinds, group net sales increased 6% to €4.63 billion, while EBITDA pre rose 28% an EPS pre was up 45% compared to Q1 2020. The financial results and tax rates improved significantly. And I will comment on this in more detail in a minute. The operating cash flow more than doubled to €1.2 billion supported by some working capital management, and also some phasing. Net debt was down by round about €700 million compared to the year in 2020.

And the net debt-to-EBITDA pre ratio sequentially improved from €2.1 to €1.8. Moving on to slide 10, for a few comments on our reported earnings figures, the EBIT increased by €327 million year-on-year in line with EBITDA pre. The financial results improved significantly due to refinancing benefits, the progress of leveraging the group and lower LTIP provisions. The effective tax rate came in at 24% in line with our new guidance range of between 22% and 24%. Consequently, earnings per share rose by 63.8% to €1.72, compared with €1.05 last year.

Please note that we expect further downward pressure on the effective tax rates in the coming months. And then increasing shelf profits will be recorded in lower tax countries. It also implies that as of Q1, the underlying tax rate for the calculation of EPS pre will be 23% will however in the future monitor carefully and closely any changes from tax regulations, so these effects are not captured here.

Belén Garijo: Thank you, Marcus. I'm now on slide number 17.

Starting with a brief update on ESP. You already heard about our new sustainability targets which we introduced at the end of 2020. We reassured that this topic is of utmost importance to me and I am convinced that our integrated sustainability approach will help Merck and our businesses to perform even better. In fact, we are not addressing sustainability as a reporting obligation, but rather as a cornerstone of our innovation agenda. The executive board will champion this strategy and we are very pleased that three weeks ago the Annual General Meeting approved the new executive board compensation system in which sustainability objectives are included.

We are currently working on concrete measures to steer our way towards our sustainability targets and can now develop a set of key performance indicators to build the sustainability factor for the compensation system. Smart KPIs will help select the most effective initiatives to improve in the spirit of our sustainability approach. One example for such is the virtual power purchase agreement we signed in the first quarter with Eneel green power. These so called VPPA is an important component of our study towards climate neutrality in 2014. And it will significantly increase our share of renewable electricity.

With this, let's move to slide number 18 to take a look at our COVID-19 assumptions for 2021. As you can see, there is no material change to the overarching assumptions that we laid out to you back in March. By business sector, our assumptions for healthcare and for electronics are confirmed. However, we meanwhile became a bit more optimistic or more optimistic on our assumptions for life science. We now believe that COVID related demand in surface solutions will be even stronger than previously assumed that translating in an improved growth outlook, as additional capacity comes on line.

Below life science, the trends for the other two businesses are expected to be a bit more volatile, as well as diverse across the different customer segments. Yet, we have become more precise, now assuming that COVID related effects will be positive in research, and very limited in Applied. Moving to slide number 19, I would like to be an additional color on the outlook of life science in the context of the pandemic, because as you know, this is our main growth engine for the future and overall as a business dedicated to making infinity solution possible so as our new life science CEO would say, we put our purpose to action to fight COVID-19 through accelerated innovation and increasing investment. Following some headwinds from the initial lockdowns in the spring last year, we have seen significant growth acceleration amid an underlying business recovery and increasing tailwind from COVID related businesses. As I mentioned before, about half of the growth in life science, since Q2 last year can be attributed to product leverage in COVID in COVID, vaccines.

COVID therapies and COVID diagnostics is skewed towards process solution and followed by research and minimal effects in our applied business. Demand across significant parts of our portfolio has been truly unprecedented. And in that context, we have acted with agility and very decisively to address the bottlenecks as needed. In the last 12 months alone with a finance investment of over €380 million in total, and we continue to make excellent progress in terms of increasing our output from our existing plants and ramping up new production sites. Most recently, we were able to accelerate very important initiatives even further, namely the one for single use assemblies involving numbers and motion and the one for filtration involving our Jaffray site.

There will be the strong demand across both cores and COVID related business. This is also one of the main reasons behind our guidance applied for life science. And the factor we now expect our life science COVID related sales to more than double in 2021 compared with 2020 and our process solution COVID related sales to increase by a factor of at least 2.5 times. Overall the situation as you know remains very dynamic and is difficult to speculate on the magnitude and sustainability of COVID related demand in the medium term, but happy to answer questions later. However, we foresee a potential need for vaccine and therapy approaches will begin the current year.

And therefore, we expect at least €500 million of COVID related sales in process solution by 2022. Meanwhile, core business dynamics remain very encouraging, and we continue to review the long term demand for the product in our portfolio against the expected capacity to be ready to act accordingly. Moving to the next slide, let me offer a brief update on Mavenclad in light of COVID-19. Mavenclad is an important strategic growth driver for Merck, and while Q1 performance was a bit muted related to the difficult market environment that we've described before we continue to remain confident in the outlook of Mavenclad. 2.8 million people living with MS globally have started and will continue to be COVID-19 vaccinated over the coming weeks and months.

We believe that all these patients, regardless of their background therapy need to be reassured that the vaccination will actually work and will generate immunity. Therefore, in this upcoming vaccination era, one of the most burning questions that we are receiving forms from the MS community is whether COVID-19 vaccines will work for patients on certain types of MN therapies. What you see here is actually the first ever published real gold study by independent investigators in Israel. And we believe it speaks of the differentiation of Mavenclad versus other high efficacy therapies in this very challenging context of increasing vaccinations. The data speak for itself, the study demonstrated that all Mavenclad treated patients who receive an mRNA COVID-19 vaccines were able to mount a full antibody response similar to that affected people.

This appears to be in stark contrast to the other two high efficacy drugs for which the protective humoral immunity was significantly lower. And we believe that these data are great news for the MS community and also an opportunity to uniquely position Mavenclad for future growth. With this, let's take a closer look at our upgraded guidance on slide number 21. As you'll see there, we expect growth next sales in 2021 in the range of €18.5 billion to €19.5 billion. EBITDA pre margins in a range of €5.4 billion to €5.8 billion, and earnings pere share pre in a range of €7.5 to €8.2.

And this is based on organic sales growth of 10% to 12%. Organic EBITDA pre growth adjusted for the Biogen commission reversal in a range of 16% to 20%. And significantly above what we had anticipated at the beginning of the year due to an improve demand outlook bears, importantly paired with a continued focus on cost discipline. FX is expected to be a headwind around 2% to 4% both on sales and EBITDA pre, so it's slightly less compared to what we have communicated to you in March. For details from the outlook by business sector, let's take a quick look at slide number 22.

In brief, and summarizing we expect group sales and EBITDA pre growth to be supported by all three business sectors with life science expected to grow fastest, followed by healthcare and electronics, relative to our qualitative outlook from March. And already an already mentioned, we have become more positive for all sectors, although life science clearly stands out. And with this and before opening the Q&A, it is with great pleasure that I would like to hand it over to Matthias Heinzel, who joined us April 1, as our new CEO for Life Science for a few introductory remarks. Matthias, over to you.

Matthias Heinzel: Yes, thank you very much, Belén, and hello to everybody on today's call.

First of all, a big thanks for the warm welcome, which I received from my new colleagues across the globe. And since many of you on the phone probably don't know me in the sector. So let me quickly introduce myself. I'm Matthias Heinzel as Belén mentioned, I joined this, the CEO of Life Science for Merck just a few weeks ago. I came from DuPont, where I spent the last 18 years holding various senior business leadership roles and working in different locations like in Germany, Denmark and the United States.

Most recently, I was serving as a member of the Executive Board, and President of the Nutrition and Bioscience Business. Prior to that, I held various leadership roles across marketing, strategy and business development in the telecoms industry in the early 90s. And I actually started my career at McKinsey. So for me, there's actually no better time than now to join Merck. And I'm really excited to be heading up Life Science.

It's such a great business, like what we've seen today with our results, and operating so successfully in such an highly attractive market. The tremendous capabilities, the broader deep portfolio, and mass global footprint of Life Science is such a great foundation for driving the future profitable growth of the business, for the benefit of our customers, shareholders and employees. And obviously, the COVID-19 pandemic is just one example of the positive impact we can make and the critical role we play. I've already had the opportunity to engage with many of my new colleagues. I did already many virtual side visits and get engaged on many of the critical topics.

So I'm really looking forward to getting to know you, our investors and analysts, and engage actively in discussions with you, especially after I have completed my first 100 days. So that said, I'm really excited to work with Belén and my executive team colleagues to take an already great business to the next level. And with that, back to you Constantin.

Constantin Fest: Thank you Matthias. Keane could we have the first question, please?

Operator: Sure.

We can now take our first question from Richard Vosser from JPMorgan.

Richard Vosser: Hi, thanks for taking my question. First question to Belén, please. Belén, I realized you mentioned that the capital markets day will be dedicated to strategy update. But I was hoping if you could give us maybe your first ideas of how you see Merck strategy, are there areas that need some changes of focus or different emphasis or parts of the group that needs strengthening or become less relevant, in your opinion in your sort of first look over the group again, in your in your new role? And then second question, please just on Mavenclad.

The quarter was I think, weaker than expected? Is there any price pressure in the U.S. or Europe and you mentioned you were confident but how would you cross a path from here with sort of annual sales of €600 million to the €1 billion €1.1 billion? Thanks very much.

Belén Garijo: Thank you, Richard. As mentioned for detailed information, we will spend a full day together in early September and this is around the corner. But let me let me give you the three principles.

First, continuity. We are starting this journey from a very solid position of strength. Second, focus. Focus stringent focus on the three big and keeping our cost discipline to deliver sustainable and profitable growth of our business. Last but not least, obviously, as our cash position improves, we will be contemplating how do we strengthen our outlook by eventually considering a better balance between inorganic efforts across the 60 sectors and eventually, and a stream of sales approach starting in 2022.

More to come in September.

Peter Guenter: And Richard, it's Peter speaking. Thanks for the question on Mavenclad. So, clearly, there is no price pressure for the time being nor in Europe nor in the U.S. So the relatively depressed sales in Q1 are entirely due to the depression of the high efficacymarkets.

There is absolutely no performance issue we continue to gain market share in the high efficacy market, both in the U.S. and Europe. And we are confident that with the decrease in lockdowns due to the increase in vaccinations that this high efficacy market will progressively redo to its normal levels as we as the year unfolds. Last, I think Belén has already mentioned that, of course, the vaccination data are absolutely key. They are extremely relevant for the neurologists and patients at large.

And, and we do think that it would make a unique position to further drive up our market share in the rest of the year.

Richard Vosser: Thanks so much.

Operator: We can now take our next question from Matthew Weston from Credit Suisse.

Matthew Weston: Thank you. Two questions, please.

The first on Life Science. I'm slightly confused about the outperformance in research. COVID diagnostics has obviously been a very important driver for the last nine months that hasn't materially impacted that business. So I'd be very interested to understand why that's now a feature of 1Q. But also to understand the trends in the non-COVID bio process revenue.

Is there any evidence that your customers are stockpiling normal orders so that essentially revenues been brought forward? And that is going to have to correct at some point in time when everything moves back to a more normal supply chain posts COVID? And then secondly, a finance question for Marcus, I know that you've lowered the tax guidance on core. And I completely understand that that is driven by the mix towards Life Science. But given that we are in a period where we've got exceptional Life Science income, and we've also got a number of governments pointing towards higher corporation tax going forward. I'd be very interested to understand what you baked into those tax assumptions for the midterm. Is that something which is specifically for 2021 or something that we should assume as a useful guide going forward? Thank you.

Belén Garijo: Thank you, Matthew. Let me let me start with research. And I will ask Andrew to continue with process. So research is strong, right? Research is strong in relation to two factors; one, low compatibles versus last year. Second, it kind of catchup effect deriving from the re initiation of activity mainly in pharma and biotech.

So we have seen an on-going business recovery across all business lines, across all the regions and across all the customers as these former lab activity continues to pick up. It is going to be going into the future, I mentioned already as part of our brief comments during the outlook, we are not expecting so. So keep in mind that during the first half of the year, we are going to have very tough comparables because Q2 will be to Q2 2020 was also a difficult one in relation to COVID. So we are expecting that the second half of the year will not be behaving exactly as per the standards as we have seen in Q1. That is the bottom line.

Then, for the process, I said Andrew you want to comment on Matthew’s question please?

Andrew Bulpin: Sure, absolutely not a problem. Hi there, Matthew, and hope you're well, and thanks for the question. In terms of the question as to whether or not we believe our customers are stockpiling? Absolutely not. We have worked very, very closely throughout this pandemic period with all of our customers. I think one of the big challenges is with the surge demand, in many cases, where we have supply pinch points, it's very much hand to mouth.

So we have worked very closely with all of our major accounts, to ensure that they're getting what they need, as best we can deliver when they need it. But certainly having to manage that sort of inventory and flow of materials because of the surge in demand. Overall, with respect to the base business versus COVID-19, last year was about

a 50:50 split. This year, quarter one, similar so very strong base business. And I think there's just a lot of activity going on in the industry, the traditional modalities, the maps, remain very, very strong.

And with all the new novel modalities, there's opportunities, because they're going after diseases and conditions that historically were untreatable, so robust market right now and very good tailwind from COVID-19.

Marcus Kuhnert: Matthew, I will take your tax rate question, obviously. And so first of all, let me let me reconfirm that that you are absolutely right, the main driver for having reduced the effective tax rate guidance for 2021 was indeed a changed country mix of the location of our profits before tax, and that is obviously predominantly driven by the strong growth dynamic in Life Science where more gains rising for example, in the U.S., which currently is a country which has a below average tax rate. So out of that, we can immediately conclude that we will see for the foreseeable future, for the near future, continuous downward pressure on the tax rate, as we believe that this was outlined by Belén also the presentation, that also next year, we would still get at least 500 million additional COVID-19 related sales. And that will enfold obviously a similar downward pressure, then what we have seen this year.

Your second assumption, Matthew was also right. We see at the moment, a lot of uncertainty regarding the future development of tax regulations in countries. That is obviously to do with the fact that nations countries are now contemplating on how to digest the economic effects of the COVID crisis. And we believe that in many cases, tax rate adjustments are likely to come. Please acknowledge that now in May, it is just too early to give a longer term projection.

That is why we feel secure to say the lower tax rate of 22% to 24% for the time being is only valid for 2021. But rest assured that we will give you a further update in the course of this year, on let's say what's going on in the on the tax regulation front and how this might impact on the tax rate going forward into 2022. To conclude with one last sentence. And currently how I see it at the moment, there's only one thing one single event that could really I would say change the picture significantly. And that is if we were to have a big U.S.

tax reform. That is something that's being contemplated and considered but still in a very infant stage. And as I said, we keep you updated when the year unfolds.

Matthew Weston: Thank you.

Operator: We now take our next question from Peter Verdult with Citi.

Unidentified Analyst: Yes, hi. Can you hear me?

Belén Garijo: Yes.

Unidentified Analyst: Yes, hi, this is Vineet here on behalf of Peter. We have got two questions. So the first one is on electronics.

Can you talk to the on-going uptick in the chip demand and how that plays versus your 6% to 8% growth target that semi solutions. Is the double digit growth scenario to consider in both 2021 and 2022. And the second question on Life Science is we appreciate that the 37% margin you posted in 1Q is unsustainable. But similarly the 32% to 33% range you have previously guided to also looks too conservative. Now given the mix change we have seen within the Life Sciences business, what is the sensible level of profitability to assume going forward? Thank you.

Marcus Kuhnert: I’ll go first. Thanks for the question. And you were referring to the close expectation and related to the Q1 situation, just bear in mind and our Q1, of course, compared to very fine Q1 last year. And our delivery systems and services business is not as steady as the material business. That's what we see quite some, some jumps from quarter-to-quarter.

And if you if I could guide you into the slide number 37 in the backup, you can see the organic growth quarter-by-quarter listed there. And it's demonstrated it’s a steady, steady situation all in all over the past over the past five quarters. At the outlook that's why we are confident looking forward on the next quarter which is included in our guidance for 2021 with a very strong outlook that we have demonstrated here. I wouldn't want to give any outlook on 2022 right now as the situation doesn't permit an outlook for 2022, but you know our long term guidance materials, semi solutions being in the up to a high single digit growth shows that we are pretty confident on the long term trends and our customers announcing capacity upgrades, significant capacity upgrades that may on stream in about 18 months that gives us additional confidence about the future in electronics.

Belén Garijo: Let me start with the second question.

And I will ask Marcus to build on that. When you look at the future, we have repeatedly said that we are extremely confident about the process solution sales growth. But please take into account that we will also have to invest. We need to invest on growth of our Life Science business. We need to invest in R&D.

We are willing to invest also CapEx even if this will not be seen here. With that in mind, and we will find the right balance and stay efficient, but assume that our intention is to continue to invest on growth of Life Science in order to keep the outlook as promising. Marcus?

Marcus Kuhnert: Yes, Thanks, Belén. That is of course I would say the strongest arguments. My points only did a bit to complement that, and to add to that, maybe one effect what we could also mention is that while we believe that the process solutions tailwind will remain strong over the course of the year.

What we have seen in research, this first quarter was most likely quite unprecedented. And here, we might see a somewhat declining tailwind over the coming quarters. We will still see a very benign and positive business environment. But I doubt that we will see these growth rates going forward. Also having in mind that we're going to talk about the comparables are getting much much tougher.

As you know, a significant portion or significant portion of that margin improvements are also due to positive business mixes. And when the COVID-19 related tailwind, at least in research declines a little bit, so will the positive business mix effect. Still our guidance entails if you take the midpoint in sales and EBITDA, and a 260 basis points increase in margin, which would lift the margin of from 32% end of last year to a level of close to 35% in 2021. And I would say that's quite a nice margin expansion.

Constantin Fest: Next question, please.

Operator: We can now take our next question from Sachin Jain of Bank of America.

Sachin Jain: Hi, thanks for taking my questions. I had a couple more on Life Sciences if I may. And kicking off with process solutions. Firstly, for the quarter I think process growth had 30% organic compares to peers in the high 50s.

So when you just do a compare and contrast and give us any color on the performance there in terms of capacity constraints or your order book delivery timelines potentially being longer. Secondly, Belén in your introductory comments. I think you mentioned process COVID sales of €100 million by 2022. I just wanted to clarify whether that was delivered in calendar year 2021. Or that was a comment for 2021 and 2022.

And if it was the latter, if you could give us any color on the splits across the years. And then I guess that's a wrap the question I guess the simple question that I get asked is, you'd be very clear on sustainability of COVID tail winds into 2022. I guess the question is, is the COVID tail wind in 2022 the same, greater or less than the tailwind in 2021? Thank you.

Belén Garijo: Thank you Sachin. I'm going to ask Andrew to speak about the order book for Life Science first.

Andrew, can you comment on that and get a bit more color please?

Andrew Bulpin: Sure, absolutely. I think there's a couple of things. One, I think you're correct in the analysis that the transformation of orders into actual sales really depends upon the availability of short term capacity. And then we certainly have some pinch points. But I think, some of the elements that we are seeing is that the quick decisions we took last year to accelerate capital investments are starting to show dividends, they came on stream in early January.

And we've seen the uptick of the output, as is demonstrated in the numbers for this year. And we will continue to ramp up throughout this year. We also announced an investment, for example, in Danvers, which is our single use that’s now on stream in Jaffray for our filtration products, that's now on stream, and we're feeling the benefits. But also looking at it geographically, an investment in the single use facility in the Strasbourg area on our multi campus, which I think gives us a little bit extra sort of protection from geodiversity, then having a more global network moving forward. So it's, it's definitely moving in the right direction.

The order intake and the order book remains strong. And we look forward to being able to deliver upon those, as the capacity ramps up in these new investments.

Belén Garijo: So Sachin, let me say, let me take just your second and your third question on the COVID-19 tailwind. Once again, the magnitude and the sustainability of the COVID related demand is kind of difficult to assess in the medium term, given the uncertainty associated about -- associated to the durability of the current approaches, as well as the potential implications of nuisance. However, we see a reasonable chance that the COVID-19 pandemic could turn pandemic, which would suggest potential requirements for boosters.

And hence, the need for vaccine and therapy approaches will be during the current year. So this is our global view on actually capturing our assumptions. So once I have shared with you before, for 2021 and beyond, in a way, the view that we have for coming years. Based on the disability that we currently have, what I hinted during the presentation is that we are expecting to see at least 500 million of COVID related sales for our process solution business in 2022.

Sachin Jain: Thank you.

Andrew Bulpin: Maybe if I, if I could just add an extra comment on there. If you look at the sort of profile, for example of the booster shots compared with the original vaccination programs, these are actually in some discussions with the main producers, these actually are of a different formulation, and perhaps will contain less active ingredient than in the original vaccination shop. So just as a watch out, when you hear sort of 1 billion doses in 2021 go into 3 billion doses next year. That doesn't necessarily translate to a 3x increase in the business level.

Sachin Jain: Can I just take care of one follow on just for that 500 million you've pointed to in 2022.

What does your guidance assume for 2021? It looks to be about €700 million. And what was that number in 2020? Again, it looks to be about €200 million. I wonder if you could just clarify those numbers so we get the sequencing right across the years. Thank you.

Belén Garijo: Yes, Marcus is going to jump to that.

Marcus Kuhnert: Yes, so Sachin I think the 2020 number was something around 400 million. We project a sector at least have two for 2021. So that means we would end close to 900 million most likely, in the course of this year total COVID tailwinds whereby the majority of that is obviously happening in process solutions. And for 2022 as Belén just outlined something in excess of 500 million.

Sachin Jain: Perfect.

Thank you very much.

Operator: Our next question from

Unidentified Analyst: Hello, everyone, thank you for taking my questions. I have two please. The first one on Mavenclad, just trying to understand the softness here a bit more. Are you able to provide any detail? If the softness is coming from fewer patients rolling into the second year of treatment? Or is this driven by fewer patients that please? That's the first one.

The second one on COVID demand in the quarter in Life Sciences. Is this predominantly driven by COVID vaccines? Or is there a decent chunk from COVID antibody treatments as well, please? Thank you.

Belén Garijo: Casey let me address the first question very quickly. So the majority is coming from vaccines with a smaller percentage coming from diagnostics and therapeutics, almost very very small -- vaccine? Peter, you may…

Peter Guenter: Casey, thanks for the question. So what you have is actually two impacts.

First, the confinements and the lack that there is a clear correlation between mobility and new patient starts. Okay. So basically, the bulk of the depression of the high efficacy market is due to lower patient starts. And there is a bit of an effect on year two patients because remember, last year in March, we started to see an effect on the new patients in the first COVID wave, meaning that you have a bit of an effect also, on the year two returns of that patient for -- that was supposed to be treated in March last year was which not treated and therefore also did not come back this year in March. But I would say the bulk of the effect would be on the new patient status.

And we see it by the way, both sides of the…

Unidentified Analyst: Thank you.

Operator: We can now take our next question from Parker Friedrich from Deutsche Bank.

Parker Friedrich: Thank you very much. Good afternoon. My first question is coming back to the €500 million of COVID revenue in 2022.

Thanks for providing this number. Did I understand correctly that this only relates to the process solution side of the business? Or does that also include the potential COVID revenue in the research solutions business? Or what the research solutions business come on top of the €500 million? And then secondly, on this on-going semiconductor shortage? Could you maybe elaborate a bit more on how this situation should affect your business throughout the year and to what extent your electronics business could profit from it?

Belén Garijo: Thank you Parker. Just to clarify for your first question. This number is the floor and it refers to our process solution business.

Peter Guenter: I’ll take the question on the semiconductor side.

So this shortage is, of course, a signal that our customers are running full steam right now in high utilization. That means that of course a certain limit to current capacity. But our customers have been announcing capacity increases over the past over the past month, which gives us a very strong confidence about the future outlook of semiconductor production capacity, basically, our target market. But the current situation, the shortage situation will continue until new capacities on screen. And this may not be much earlier than as I said earlier in the question 18 months from now, that's the situation we are in, but currently full utilization across all different areas in semiconductors.

Parker Friedrich: Okay, thank you.

Operator: We can now take our next question from James Quigley from Morgan Stanley.

James Quigley: Hi guys, thanks for taking my questions. I got a couple of question really. So Mavenclad, I'm not sure if I've missed this in the release.

But could you give us an idea of what the U.S. versus ex U.S. is? And then in relation to the interesting data on slide 20, so saying that the T cell response is still maintained in patients and offer infection in patients who have up reverse and the COVID vaccine, then we will look at the infection rates in the Phase 3 trials with CD-20 that they're not significantly elevated. I mean, I mean, do you have any other evidence or real world real world data to suggest that patients on CD-20 therapies are more susceptible to COVID-19 infection, in which case data that you presented is could be very, very powerful. And then also sort of on MS, could you give us an idea of what the exit rate related latest data at least in the last month at you have shown for the high efficacy market trends in the U.S.

it is to sort of get a sense of the opportunity here from having played in, in that in that area. Then second question on fertility dynamics. And what are you seeing across the different regions in sort of where are we in terms of the reopening of fertility clinics? Are we sort of close to, close to two to four reopening in the U.S. and APAC where you saw particular signal strength? Or is there, or is there more to come for..?

Belén Garijo: Peter, please.

Peter Guenter: Yes, so, thanks a lot for the questions, James.

So, first of all, the split between the ex-U.S. and U.S. is around

about 50:50. There is a little bit of variation, quarter-by-quarter, but roundabout, that's where you would think about, okay. On the whole debate around V cells and T cells humoral and cellular immunity.

I would say that, we have definitely very strong data that we do create a humoral response with very strong antibodies, identical really to normal subjects. And, and you see very, very different data coming from the other high efficacy products. Now, the whole debate around T cell immunity, I wouldn't go into that space. I think that the burden of proof is on the other high secrecy products. And I think they have a bit of work to do to prove in these that you would mount a cellular immune response.

In terms of market share trends in the U.S. So in the highest frequency market, if you look at the latest dynamic share points were around about between, I would say 5% to 6% in the dynamic and we're around about 2.5% in the total market going up. We have a bit of a different situation in most European countries, where we have an average higher share of round about 10% plus. And on fertility so extremely excited by what we see in that market. It's really a great place to be in.

There is a sustainable tailwinds in terms of demographics. Obviously, there is a relatively low and weak level of competition. And after the dip in Q2, you saw actually the markets coming back relatively quickly to normal situation. And now we have actually even a bit of a catch up mode, which is part of the explaining the quite stellar Q1 results. Don't forget, of course, that in Q2 last year, we saw a pretty dramatic impact of COVID and the confinements so expect of course, a very weak comp in the in the quarter to come.

James Quigley: Great. Thank you very much.

Peter Guenter: Thank you.

Operator: We can now take our next question from Simon Baker from Redburn.

Simon Baker: Thank you for taking my questions.

Two please. Firstly on Display Solutions. You said in the slides that OLED is not yet compensating for LCD weakness? I wonder if you could tell us when you expect that to be the case and how far off we are from OLED compensating for LCD declines? And then secondly, for you Marcus, it's a small point, but I just wanted to check on healthcare. There's been a bit of a shift in the amount of amortization of intangible assets within cost of goods and marketing and selling expenses. One is significantly higher than last year one is significantly lower.

I just wondered if, if Q1 is in is a good trend for the year and if it's been any accounting policy changes. Thanks so much.

Belén Garijo: Kai, you want to take your first question.

Kai Beckmann: Simon, I will take the first question. And so the materials market is supposed to be on the same level as the liquid crystal materials market about next year.

That's as far as the market data is showing, but bear in mind that our position in liquid crystal of course is stronger in OLED we are now supposed to be competitors and in different offices stronger than that. So it will take some time until both businesses would be on the same on the same level.

Marcus Kuhnert: And Simon, can you repeat your question again?

Simon Baker: Yes, certainly Marcus. If we're looking at healthcare, amortization of intangible assets within cost of goods marketing and selling expenses. Q1 looks significantly different to last year.

So the amount of amortization of intangibles in COGS is significantly higher. And the amount within marketing and selling is lower. They're relatively small numbers. But I just wondered if Q1 is good guide to the rest of the year. And if there's been any accounting changes that have prompted that.

Marcus Kuhnert: I'm not aware so that we have any kind of accounting changes. And regarding the to be expected run rate for the year, I suggest the IR team is going to follow up with you directly, Simon.

Simon Baker: Great, thank you very much.

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

Operator: We can now take our final question from Luisa Hector from Berenberg.

Luisa Hector: Oh, hello, thank you for taking my question. Just in terms of the outlook this year, and given that we are really nearly halfway through the year, and we do have quite reasonable visibility with your order books, etcetera. I just wondered if you can make any more comments on what's driving the upper and lower end of your guidance range? Is it still the uncertainty of COVID that gives you that spread? And then just to come back on the Life Science investment? You made a few comments about your capacity expansion related to COVID. Are you pretty close to those investments now being fully operational? And how should we think about the investment into the core underlying business since you've identified further demand this year, which has led to part of your increase guidance? Thank you.

Belén Garijo: Hi, Luisa.

I think we have we have already shared that as much as we can on you know, based on the visibility that we have today on the -- during the presentation. So once again, looking forward to 2021 you can use the answers that I have given for Life Science as a proxy, right? Because healthcare will move on the high efficacy dynamic market progression, as Peter repeatedly said, and also the increased mobility that is actually reflected already, during our Q1 results associated and implicating fertility and another businesses. So as vaccination, progress, we cannot expect anything but there's a mobility and recovery, assuming the traditional healthcare dynamics of the past. Pending and this is a different question, and it's related to mobility, the high efficacy, dynamic market trends. On Life Science, I mentioned that already we have an on-going multiyear program to expand our Life Science capacity to support this global and growing demand.

And so far, we are really on track. I mentioned how heavily we have invested in the last month. And that amounted to €350 million. And it's because we believe that the trend will continue as you see each and every vaccine manufacturers have announced new commitments, speaking of new vaccine doses being produced and committed to different countries and governments and as we see these trends be kept to the future, this has given us confidence that we are going to be further develop in the business mainly in Life Science on the basis of on the basis of our increased capacity. And that is really the main element that would make a difference between the low and the high rate and revenues obviously.

Operator: Thank you. This was the last question…

Belén Garijo: There was a question on capacity. I don't know. I don't know if Andrew, do you want to add anything very briefly on capacity of Life Science and the capacity of expansions beyond what I have said already.

Andrew Bulpin: Sure Belén.

And you mentioned the €380 million. If you look at that it’s split really across core business and the the needs of COVID-19. So for example 140 million investments in Darmstadt for new membrane plant. €100 million in battle viral vector. We've got 60 million in Madison for high potent API's and for ADCs and then 21 million in Darmstadt for single use, 19 million in Jaffray for filtration, 18 million in books, supporting our reference materials, and then the 25 million investment for single routine multi.

So significantly investing and then to add to that sort of where we are with the acquisition of AmpTec in the mRNA space, the CDMO space there. And our partnership with BioNTech to accelerate liquid supply is there is a significant investment both in bass and COVID-19 activity across process solutions.

Constantin Fest: Well, thank you very much. With this, I'd like to hand over again to Belén for closing words for this call. Over to you, Belén.

Belén Garijo: Thank you for standing by. In the benefit of time, I will be very, very brief and I will focus on thanking everyone for making the time and for your increasing interest in Merck. We look forward to meeting all of you. And many of you in the upcoming road shows that our plan is starting today. Some of them will keep in mind that I want you to resolve that view on August 5 and we will be hosting our capital markets day September 9.

With this, thank you very much for all your questions and your attention and talk to you soon. Bye bye.

Operator: This concludes today's call. Thank you for your participation. You may now disconnect.