Operator: Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on the Third Quarter 2019. 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, Marie.

And a very warm welcome from my side to this Merck Q3 ‘19 results call. My name is Constantin Fest. I am Head of Investor Relations here at Merck. And I’m delighted to have here today with me also Marcus Kuhnert, our Group CFO as well as Udit Batra, Life Science CEO of Merck. In the next few minutes, we’d like to walk you through key slides of this presentation, roughly half an hour is my guess.

And after that, we’d happy to take all of your questions. Having said this, I would like to directly hand over to Marcus, to kick off this presentation. Marcus?

Marcus Kuhnert: Thank you, Constantin. Good afternoon, warm welcome to our Q3 earnings call also from my side. I’m starting on slide five of the presentation looking on the highlights.

Overall, Q3 was good quarter for us with organic sales growth of 5.7% at Group level, reflecting another strong trend in both of our Life Science and Healthcare business sectors, more than offsetting the expected decline in Performance Materials. Group EBITDA pre grew by a healthy 10% organically, mainly due to the favorable sales development, continued cost discipline across the board and further deferred income from GSK in Healthcare. On Versum, most of you will have noted that we successfully closed this acquisition early October, and hence, well in line with our original plans. Integration has already started, and we are proud to welcome our new colleagues on board. Finally, we are upgrading our full-year 2019 guidance for sales and EBITDA, while keeping it stable for earnings per share pre.

Specifically, we now expect net sales in the range between €15.7 billion and €16.3 billion; EBITDA pre between €4.23 billion and €4.43 billion; and earnings per share pre between €5.30 and €5.65. Note that the uplift at the operating level stems from the expected first time consolidation benefits of Versum, or to put it differently, we fully confirm our organic growth ambitions of 3% to 5% for sales and 10% to 13% for EBITDA pre, and I will come back on the stable EPS pre corridor later. So, now, let’s take a closer look at sales and earnings contributions by business on slide number six. Life Science had a stellar performance with 10% organic sales growth driven by all businesses and regions and even slightly exceeding the already strong growth rates from Q1 and Q2. However, we would also caution you to extrapolate this into the fourth quarter.

Udit will elaborate on this later in the call. Healthcare also ended very nicely with organic sales growth of 8%, the highest in almost a decade, reflecting moderate growth in the base business and rising contributions of our recently launched products Mavenclad and Bavencio. Performance Materials on the other hand, weighed on our overall performance with an 11% organic sales decline, mainly due to the expected decline in liquid crystals as the capacity effects from recent panel manufacturers’ investments have finally faded out. On earnings, the 10% organic growth in EBITDA pre was largely driven by Healthcare and Life Science, more than offsetting the declines in Performance Materials. Finally, a brief comment on FX.

As you can see from the slide, currencies have been a tailwind for us in all business sectors and for the Group as a whole with a mitigating effect from hedging losses showing the corporate and others line as usual. On slide number seven, turning to the regional split, I’ll keep it brief by saying that we have continued to see organic growth across all regions. Growth rates do vary somewhat from one quarter to the next. And in Q3, we had LATAM standing out at 16% growth, while in absolute terms Asia-Pacific remains the largest contributor to growth. Moving on to slide number nine then, a couple of points I would like to make on the headline figures.

While we are reporting strong sales growth of 8%, even stronger EBITDA pre growth of 15% in Q3, you will have also noticed that EPS pre increased by only 2% with the main driver being a higher negative financial result. Now, I’ll come back to this in a minute. I would also like to point out that regarding non-recurring income we had a pretty clean quarter. Earnings were only supported by another €30 million of the GSK upfront payment in Q3, and we expect a similar number in Q4. Also note that this number can vary depending on trial dynamics and our strategic alliance with GSK.

Further on the topic of non-recurring income in Healthcare, you will also remember that in our last earnings call, we guided to at €100 million to €150 million in H2, and we are confirming this today. Operating cash flow increased close to 30% in the third quarter while net financial debt rose by 9% since the end of December, mainly due to IFRS 16, dividend payments and temporary investments of cash proceeds from the Consumer Health disposal. Compared to the status, by the end of June, however, we were able to reduce financial debt by €0.5 billion. On to slide number 10, and a few comments on our reported figures and the financial results in particular. You will see that the financial result of minus €135 million is substantially lower compared to prior periods, which in part is due to higher interest expense related to a full quarter of Versum financing.

That said, we confirm our 2019 interest result guidance of €260 million to €280 million updated in August, but would point you to around the higher end of the range amid finalization of the Versum financing, which includes also one-time charge for early redemption of their high coupon paying bond immediately after closing. The main driver behind the lower interest results though is a meaningful drag from higher LTIP provisions. The LTIP related track was in the low to mid double-digit million euros, both year-over-year and quarter-over-quarter, and mainly reflects the outperformance of the Merck shares versus DAX. Please also note that especially when we see decupling of the Merck share versus DAX, we may have respective impact on the financial result. In the third quarter, this was one of the main drivers behind only moderate EPS growth, as explained before.

Finally, reported EPS also reflects a higher tax rate due to reverse of future tax audits, but we are confident to end the year in the guided range of 24% to 26%. With that, let’s move on to the review of our business sectors starting with Healthcare on slide number 11. Healthcare had a strong quarter with sales up 8% organically, given solid growth in our base business, paired with further uptake of recently launched products, Mavenclad and Bavencio. Within our base business, we were pleased with the continued double-digit growth of our general medicine portfolio as well as the healthy dynamics of Fertility and Erbitux. Also note that our N&I franchise containing Rebif and Mavenclad saw positive organic growth already in the third quarter, and we expect further rising contributions in Q4.

Remember that was one of the things we have basically put on the table in August that we expect the tides to turn in the second half of the year. And we have now already seen positive growth of 2.3% organically in the third quarter. On our new products, given the year-to-date performance, we slightly increased our guidance for Bavencio, now expecting around €100 million on sales in 2019 compared to high double digits previously, and we become also more precise for Mavenclad now aiming for around €300 million compared to up to mid three digits before. With regard to the strong margin expansion in Q3, please note that next to IFRS 16, this has been supported by €30 million of deferred income from GSK, but also another sequential uptick in underlying profitability due to stringent cost management. Finally, a quick update on non-recurring income in 2019 as announced earlier.

Given the €30 million from GSK, recorded in Q3, our unchanged guidance for H2 leaves us with some €70 million to €120 million in the fourth quarter. This consists of another €30 million from GSK, €35 million for the recently accomplished RCC approval of Bavencio in Europe, another €20 million for the anticipated RCC approval of Bavencio in Japan, which we expect to happen until the end, and potential support from additional pipeline and portfolio management measures. As such, we concern our 2019 guidance for Healthcare. And with this, let me hand over to Udit.

Udit Batra: Thank you, Marcus, and a very warm welcome from my side as well.

I’m now on slide number 12 with a review of our Q3 numbers. Life Science had yet another very strong quarter, cracking a double-digit mark for organic sales growth for the first time. And this is driven by a broad-based performance across all of our businesses and our regions. Process Solutions was again the largest contributor with roughly 16% organic growth, matching the strong trend that you’ve seen in the prior quarters, and this is driven by sound biopharma end markets. Applied Solutions also had a very good quarter with sales up almost 7% organically, so slightly above the first half and with key drivers including our advanced analytical and lap water portfolios.

Research Solutions delivered a solid 5% in terms of organic sales growth, so somewhat above the trend and really good demand from our workflow tools business and a strong contribution from e-commerce. Regionally, we saw double-digit organic sales growth in APAC, Asia-Pacific and LATAM and a high-single-digit sales growth in North America and Europe. EBITDA pre came in at €531 million euros. This reflects an organic growth of roughly 14% and an increased margin of 31%. The gross margin was slightly down year-over-year in the third quarter, but it’s still tracking nicely ahead of last year for the nine-month period, and we’re pleased to see this operating leverage across all our OpEx lines.

Finally, backed by our strong nine-month performance, we’re slightly upgrading our 2019 guidance for Life Science, but would caution you to extrapolate a very strong trend of prior quarters into Q4. This is given the lumpiness in the business across quarters, and this is really nothing that is uncommon. With that, let me move to slide 13 to start a slightly deeper dive into this business. So, now, I’m on slide 13. I’d like to zoom out for a few minutes and reflect on the fundamentals of our business before zooming in again.

We are operating in a truly attractive environment, which is characterized by long-term secular growth trends such as a growing and aging population, rising regulatory trends, as well as science and technology-driven progress across multiple disciplines. Today, we are looking at a global life science tools market worth €170 billion in sales and forecasted to grow in mid-single-digits with established players like us generating EBITDA margin well in excess of 20% on average. We have three business units, namely research, process and applied, each of them with their own characteristics and a distinct subset of growth drivers. We’ve shared and discussed these with you in detail at various occasions, including our recent Capital Markets Day. So, I really won’t bore you with reading them out from the slide.

But, let me pick out one prominent example, which is familiar to you, but still describes the drivers of our industry extremely well, and this is the ongoing rise of biologics. It is really a brilliant time to be in Life Science. In my two and a half decade association with pharma, I don’t remember a time when so many effective approaches and modalities including cell therapy, gene therapy, mRNA, SiRNA based approaches have all made it to the clinic. Almost 33% of the biologics pipeline consists of these novel modalities today. Now, we not only need new research tools to interrogate these complex molecules, but we also need new and efficient manufacturing processes, regulatory processes and collaboration models to get these to patients in need.

We at Merck are right in the middle of this trend with our links to the global research community. Almost 1.6 million researchers come to our e-commerce site. We are also a leading provider of consumables and hardware for biologics production. So, the market is indeed attractive and dynamic and we’re positioned quite well in it. Now, I’m moving on to slide 14.

In this attractive market, we really have challenged ourselves to set the benchmark for performance. I was entrusted by our boards to take over as CEO of the Life Science business back in April of 2014. And together with my team, we’ve developed and executed a strategy that has included the largest acquisition in the 351-year history of Merck and the largest to-date in the tools industry. I guess, it would become the second largest in the industry if another one closes. Our strategy included very specific choices that not only deliver the synergies from this acquisition but we also allocated resources to accelerate the growth of the business.

And let me give you some examples. I mean, you’ll remember, single-use bioprocessing. The single-use business was growing roughly 20% organically back in 2016. And with investments to standardize production in our Danvers, Massachusetts site, and to increase our capacity both in Danvers and in Wuxi city in China, the single-use and hardware business grew close to 30% in 2018, so from 20% to 30% in a matter of two years. Back in 2016 and early 2017, and you’ll remember if you were following Sigma-Aldrich in the prior years, the lab and specialty chemicals business was flat and declining.

This has been turned around with really strong execution from our teams around specific focus on bulk product sales, launch of Synthia retrosynthesis software and of course better performance on e-commerce. And finally, to give you an example from Applied Solutions, we felt we were not the best owners of our flow cytometry business where we lacked scale and were somehow underperforming, so we divested this business about a year ago. So, what you can see from this chart is a result of some of these deliberate choices. Every year, since 2015, we have outperformed the market in terms of organic sales growth. And here, I just picked two other scale competitors.

And by this time, a lot of our competitors have already reported, so you see the nine months results also on this chart. And you can see that at this point, year-to-date, while the organic growth of key competitors is between 5.5% and 6.5%, clearly more dynamic than the last two years, we’ve hovered around the 9% organic growth mark. And the team has remained really focused on cost management. So, you see a steady margin expansion of 300 to 400 basis points. And there is such a lead versus competition, even if you penalize us with 2% to 2.5% of corporate cost from the 31.1% that you see in the first nine months of this year.

So, all-in-all, I think it is a safe assumption to -- safe assumption that our teams are performing at rather acceptable level. Let me move on to slide 15 and cover Q3 for each business in a bit more detail. Process Solutions has been the standout again with roughly 16% growth this quarter. And if you were to look a bit deeper, bioprocessing grew in the low 20s and services in the mid teens. Geographically, really nice performance across the board, but again I would mention China.

And here, the organic growth is in the low 40% range. Yes, I think you heard that right, and very often this is due to large orders that come in some quarters, but low 40% organic growth is quite nice for China as well. We augmented our portfolio in the Process Solutions business with the acquisition of ProcessPad to collect data from all our unit operations in the BioContinuum Platform in a single format. In gene editing and novel modalities, you would have read the acquisition of FloDesign. And we continue to file patents for CRISPR/Cas9.

And we recently signed a deal with Evotec for use of our CRISPR/Cas9 IP. For Research Solutions, the growth of the lab and separation workflow tools business is actually really endearing for me. This portfolio has hovered around 2% to 3% growth for very long time. And this year, we’ve really doubled -- almost doubled that growth rate. E-commerce in Research Solutions contributes 2 times the rate of offline growth.

And finally, to point out China again, China is growing in the mid-teens even for Research Solutions in the third quarter where we have recently announced the partnership with Alibaba to expand our e-commerce platform for smaller customers. And we move to the third business, Applied Solutions where advanced analytical business grew double-digits in Q3, bringing it to high single digits year-to-date. Lab water continues to benefit from the solid consumables that followed the launch of our Milli-Q, IQ 7000 platform launched last year. And geographically, really nice performance with high-single-digits in emerging markets, and solid mid-single-digit growth rate in many mature markets. Hereto, we augmented our portfolio with the acquisition of a software company called BSSN, to connect all instruments in a laboratory.

So, all-in-all, a pretty broad-based strength across both, geographies and portfolio. Before I hand it over back to Marcus, I wanted to spend a bit of time on sharing some of our beliefs and investment opportunities for the future. This is all on slide 16. And I want to highlight three trends that we really believe are benefiting us quite a bit. Starting with the first one, this is complex biologics or novel modalities.

Just as a reminder, the market growth in mAbs is forecast to remain in the low teens to up to 2023. While those of novel modalities, for example cell and gene therapy are expected to grow in excess of 30% to almost double that trait of mAbs. Against this backdrop, we’ve expanded our single-use, and joint facility in Danvers, Massachusetts, as I mentioned earlier, we opened an assembly plant in Wuxi, China which already within six months of opening has full utilization. So, that’s been -- that really reflects strong demand in China. We’ve also expanded our viral manufacturing site in Carlsbad, California.

And we successfully launched our Antibody Drug Conjugates Express offering for rapid production of ADCs. Digitization is the second trend that, of course, is affecting many industries and is also shaping many of our day-to-day activities, as well as many of our client interactions. We, of course, are very well-positioned with our leading e-commerce platform, sigmaaldrich.com, and we constantly invest behind this to grow its agility and greater customer centricity. Today, more than 90% of the all Millipore products are available online, while year-to-date we’ve seen sales through the online channel growing double the rate of the offline business in each of our three businesses. And we believe this trend is likely to continue.

Last but not least, I’ve already mentioned quite a bit about China. We’re seeing superb growth across Asia these days. And we believe this market is clearly in its early days and with many projects to come, as we look ahead. We have significantly invested in manufacturing and distribution in Nantong in China while successfully driving commercial expansion in Tier 2 cities. And we continue to leverage our strategic e-commerce partnership with Alibaba, as I mentioned before.

So, all-in-all, we feel confident that we are putting our capital to work in the right spots, and we will hopefully see strong results going forward. I will be happy to take your questions towards the end of the call, and to provide additional color during the Q&A. But for now, let me hand it back to Marcus.

Marcus Kuhnert: Thanks, Udit. I’m now on slide 17 with the review of Performance Materials.

Overall, PM had the soft quarter but in line with expectations and the guidance. Sales in Q3 declined 11% organically with all businesses down year-over-year. Please note in this context that we are delivering on our promise for increased transparency by showing growth rates now for each of the three business units in PM for the first time. Display Solutions was the main driver with the 15% organic decline. A strong growth in OLED was more than offset by declines in liquid crystals against tough comps.

The numbers are reflecting the expected end to the extensively discussed temporary boost we have enjoyed from capacity ramp-up project of several panel manufacturers in China. Semiconductor Solutions recorded an organic sales decline of 3.5%, which is somewhat better than the market and proof to our good position which we believe will be further enhanced by the recently accomplished acquisition of Versum. Surface Solutions was down by 6% organically in terms of sales, reflecting weak end markets in automotive and an increased industrial portfolio focus amid our Bright Future program. EBITDA pre came in at €177 million, implying a decreased margin of 30.5%, and the 19% organic decline despite stringent cost management. Finally, we are confirming our guidance for Performance Materials.

Although based on what we have seen year-to-date, we believe that landing in the lower half of the range is more likely. On to slide number 18 with a few remarks on our balance sheet. The increase of cash and cash equivalents in the first nine months of the year mainly reflect the financing measures related to Versum, which we’ll have on the balance sheet as of Q4. We are currently going through purchase price allocation and will provide guidance on related D&A with our full year results in March. That being said, net financial debt has increased from €6.7 billion to €7.3 billion since December, as free cash flow generation was more than offset by effects related to the first time adoption of IFRS 16, dividend payments and temporary investments of cash proceeds from the Consumer Health’s disposal.

So, our net financial debt to EBITDA ratio as per end of the third quarter stands at 1.8, while following the closing of Versum acquisition we expect this ratio to be around 3 times by year-end. With that, let’s take a closer look at the cash flow statement on slide number 19. The strong operating cash flow is mainly due to favorable changes in other assets and liabilities, reflecting among others the milestone payments we received for RCC approval of Bavencio in the U.S. The P&L effect was in the second quarter, the respective payment now ended our book in the third quarter. The investing cash flow has remained pretty stable while the much higher financing cash flow obviously reflects the previously mentioned financing measures related to the acquisition of Versum.

With that, let’s move to the outlook section. I will start by discussing as usual, our key earnings drivers for 2019. For Healthcare, we told you in August that we expect organic growth in the N&I franchise as of the second half and in fact as already mentioned, we have delivered this already in Q3 and expect further rising contribution in Q4, which should definitely be supportive of our mix and sector margin going forward. Staying with Healthcare, we confirm our guidance of €100 million to €150 million of nonrecurring income in H2 with €30 million from GSK recorded in the third quarter. For Q4, we expect another €30 million from GSK plus total of €55 million for Bavencio milestones and potential further support from pipeline and portfolio management measures.

Moreover, we aim to become less dependent on nonrecurring income as of 2020 while our focus on cost will continue. As such, we confirm our guidance for about stable R&D expenses in Healthcare in 2019, while aiming for at least stable to slightly declining R&D, marketing and selling expenses in 2020. Note that we have moved the R&D piece from reducing to supporting factors as to illustrate our increased cost focus, while still investing into our strategic and promising pipeline projects. For PM, we expect a significant decline in display solutions seen in Q3 to continue in Q4, as reflected in our guidance. We also stick with our ambition that 2019 will be the sector’s tough year excluding Versum.

However, this will to some extent also be dependent on the overall market environment, both in liquid crystals where we expect ongoing structural declines and semi where we continue to anticipation return to growth in 2020. On Versum, and this is new, we obviously expect positive earnings contribution following the recent closing. Last but not least, we expect ongoing strength in Life Science and have slightly upgraded the sector guidance accordingly. But note that we expect Q4 not to be as strong as the prior quarters as Udit has explained to you earlier. Coming to the Group guidance on slide number 22.

Based on our good nine months’ performance and successful closing of the Versum acquisition, we raised our outlook for sales and EBITDA pre while keeping it stable for EPS pre. Please note that in guidance terms we include Versum only at Group level and not in PM as to make your life easy and allow for a like-for-like comparison. Organically, that means without Versum and FX effects, we fully confirm our Group guidance for sales and EBITDA pre, while from a business sector perspective we point you to the lower half of the range in Performance Materials, confirm for Healthcare and slightly raise it for Life Science. On Versum as communicated with the closing early October, we factor a contribution to year-end of €270 million in sales, €80 million to €90 million in EBITDA pre, and €0.11 to €0.14 EPS pre. It is important to note that the €0.11 to €0.14 in EPS pre do not include the respective interest expenses for the Versum acquisition financing, because we have given or we have factored this in August already in our financial result guidance for 2019 and as the financing basically was done at this point in time.

This is important to mention because eventually when you do the calculation you come to a somewhat lower number of EPS contribution of Versum. Also, you may wonder why we have left EPS pre guidance unchanged. There are a couple of drivers that work here including higher LTIP provisions and higher interest expenses where for the later we now point you around the higher end of the guided corridor. And for the avoidance of doubt, we obviously still expect Versum acquisition to be immediately accretive to EPS pre, as just noted. On FX, while we now expect slightly more tailwind on sales, earnings remain less effective due to hedging.

And with this, we are happy to take your questions.

Operator: Thank you. We will now begin our question-and-answer session. [Operator Instructions] We will take our first question today from Richard Vosser of JP Morgan. Please go ahead.

Your line is open.

Richard Vosser: Hi. Richard Vosser from JP Morgan. Thanks for taking my questions. Three, please.

First question is just on Mavenclad. You very helpfully gave us the split between North America and the ex North American sales on the last call. I wondered if you could give us that split this quarter and maybe give us some updated dynamics on new and returning patients in Europe. Second question, just on China in Healthcare, maybe you could just talk about the potential for tendering impacts or the four plus seven tenders on Concor, Euthyrox, Glucophage, when we might anticipate impacts, could that be in 2020? And then final question on Life Sciences. Perhaps -- it sounded like China is very, very strong, and we should think about the maintenance of those growth trends.

But, could you give us any help around any bolus characteristics around the Chinese demand? Is there anything sort of rationalization of the biotech players, products or is this for a time -- a long time in the future? Thanks very much.

Marcus Kuhnert: Hi, Richard. Thanks for your questions. I would start. Mavenclad split Q3 was one of your questions.

You can think about that we have in the third quarter in total €89 million sales. And we have to split roughly one-third to North America, one-third attributable to Europe and let me also mentioned that we have in both regions, seen a positive sales growth dynamic in the third quarter, so very satisfactorily picture. Then, a couple of more words on the dynamic Europe. So, we have very good adherence with roundabout 90% of the patients coming back in the second year. And as I said favorable demand dynamic in ex-U.S.

sales for third quarter. Moreover, approval so far granted in 69 countries with more than half of these countries where we get meanwhile, reimbursement. Last but not least, in Germany, we saw for example, nice market share uptake, sequential increase now, as a major market in Europe to 17% within the last quarter. And also Italy and Spain, we have made for the progress, and there we are now reimbursed. And we see also an increasing contribution of smaller countries.

Your second question, China in Healthcare. So, let me first elaborate a little bit. So, this volume-based procurement thing, just to reiterate, we have seen no effect on us with the so-called wave 1 this initiative that has started recently. However, there’s good reason to believe that especially with Glucophage and Concor, we could be included in wave 2. We expect at the moment that we will have more details on that until end of this year.

However, we do not expect an economic effect on our numbers on our sales before half of 2020. So, any kind of sales impact you should expect, if we are included in wave 2 only from H2 2020 onwards. Let me also say, we are carefully watching the development and we will definitely factor in everything what we know and see into our planning and plus also into our guidance for 2020. We’d expect that the price cuts are quite relevant, but we would also expect that those will be partially offset by the strong volume growth we have already seen in recent quarters. So, yes, there will be an impact on us, but don’t forget -- I mean, China will remain strong contributor to our Company’s growth, because we have other compensating factors in China, like for example, the strong growth with Erbitux since we have made it finally into reimbursement list.

And with that, I will hand over to Udit for question number three.

Udit Batra: Thank you, Marcus. Richard, thank you very much for your question. I think, first, just a couple of facts. We’ve in fact seen acceleration in growth in China over Q3.

In fact, Q3 is in the low to mid-20s overall for the organic sales growth. And if you remember, I said something in excess of 40% organic growth for Process Solutions. That means that Research and Applied were also growing in the low-teens, so really broad-based growth. And your question then is, well, do you see this as a one-time impact or do you see this going down? Let me just give you a couple of specific examples that makes us confident. On the Process Solutions side, we opened up assembly center for single-use Wuxi city less than six months ago.

It is completely full. So, we can’t assemble things fast enough to ship to our customers there. From a Research Solutions perspective, and Applied Solutions perspective, you would have seen that we’ve recently signed a deal with Alibaba to reach some smaller customers, and that businesses picked up very, very nicely. The e-commerce platform is doing extremely well with our Research and Applied customers in China, especially Tier 2 customers. So, we see really no signs of slowdown.

I mean, of course, especially with Process Solutions and bioprocessing, it’s a little bit of a lumpy business, where there can be large orders one quarter versus the other. So, I would not get used to the 40-plus-percent organic growth every quarter. But, you can safely assume that China is our strongest growth market, and we expect it to remain so for a while to come.

Operator: Our next question comes from Joseph Lockey of Morgan Stanley.

Joseph Lockey: Marcus, thinking about Healthcare P&L in 2020, you said we should expect other operating income to be less than in 2019.

But, your bintrafusp development partner said earlier today that they might be paying you the full €500 million development milestone in 2020, based on a possible interim read of the lung data. So, does this mean that you would not book a development milestone within other operating income, or is it that your base case is that you will not receive any development milestones for bintrafusp in 2020? And then, Udit, you’ve advised caution on extrapolating Life Science revenue trends, but you just lapped a very tough comp with 10% organic growth. And you just flagged a number of quite strong attractive trends, consensus of 6% growth next year, which seems quite conservative. China sounds strong. Are you seeing any areas of weakening demand that suggests growth materially slows?

Marcus Kuhnert: Yes.

Joe, I start with your question on bintrafusp. So, obviously, when we say that 2020 -- or put it this way. Similar to the upfront payment that GSK has paid to us in February this year, also the milestone payments of up to €500 million will be recorded as deferred income over the period of working together -- over the period where we incur costs in the context of the collaboration. So, that means that even when we will be or would be eligible to those milestone payments, we would record only a fraction of that up to €500 million into our P&L. More details to come at a later point in time.

Udit Batra: Superb. Joe, let me take your second question on Life Science. As you can imagine, this question has come up before as well. And this is one of the reasons why we showed you the market growth as well, right? So, if you look at -- and by this time, you would have seen that most of our peers have reported, and the growth rates are between 4% and 6%, and closer to 6% this quarter, given the strong dynamics in the market. In that market, we are definitely on the high end, we are well in excess of 6%.

So, your question is a fair one. Now, that said, while the market is 6%, we will -- we do believe we can exceed those growth rates. For next year, as you think about comps, they do get tougher. And let me just take an example of Q4. I commented on this earlier.

If you go back to last year, Q4 was the highest quarter ever for us in terms of absolute sales, about €90 million above Q3 of the previous year. So, that makes the Q4 comps a bit more difficult for us as -- for the balance of the year. And the same logic applies to next year, the stronger our growth this year, the comps become tougher. That said, I also don’t want you to walk away with the message that we see any weakness in demand or any weakness in our business, we don’t see that. But I would just say the comps get tougher as you continue to outperform.

And this kind of our performance, while we are happy that we are outperforming the market by this much, I think, one has to be a bit pragmatic about how much you can sustain, how much need you can sustain for the long term.

Joseph Lockey: Okay. Thank you.

Operator: Our next question comes from Florent Cespedes of Societe Generale. Please go ahead.

Florent Cespedes: Good afternoon, gentlemen. Thank you very much for taking my questions. Three quick ones. First, on Healthcare on Gonal-f. Could we have more color on the performance of this product in the U.S.

and Europe? And regarding China, even though some of your competitors highlighted that the injectable products will not be impacted, is there any risk? What’s your view on this, Gonal-f in China? Second question is on Performance Materials. You in Q3 outperformed the market; the Semiconductor Solutions is minus 3%. Could you share with us what’s your view on your ability to outperform the market following Versum acquisition, given the product mix from this Company? And the last question, Performance Materials again, on OLED, you mentioned that the growth is slowing down a bit. Could you maybe share with us, which are the reasons behind that? Many thanks.

Marcus Kuhnert: Thanks for your questions, Florent.

I start with your two PM questions. Yes. So first of all, you’re right, Q3, so in Semicon was down minus 3.5% organically. And that is slightly ahead of the market, if we take for example the MSI Index, as representative for the market. The MSI Index for 2019 is supposed to decline in the range of minus 7%.

And here, at the moment, we are indeed doing better. When we look forward, of course -- let’s say, we don’t have a crystal ball, but what I can tell you is that we continue to believe in the mid to long-term trend of the industry with the Semiconductor Materials market mid-term growing in the mid single-digit. And when we look let say to 2020, we see at the moment some signs of recovery already, when we talk to customers, when we talk to suppliers, when we listen to the markets. Also, the MSI forecasts point to a moderate growth of around 2% into next year. And when we follow, let’s say, the track record that we have that we always outperform a little bit the MSI index in the past, and if you project this to the future, we should see some growth in 2020.

And to the second part of your question, of course, Versum is supposed to help us them there, because we believe that the two portfolios are very complementary. Our spin-on dielectrics, combined with Versum’s strength in deposition materials, we are both quite decent in silicon; that from my point of view will bring us in a good position actually to have a successful 2020 and beyond. On your second PM question on OLED, I can only say that we are continuing enjoying strong growth in OLED in excess of 20% organic sales growth rate. I mean, it was a little bit higher in Q1 and Q2, that’s true, but Q3 was still above 20%. So, coming from a basis of already €100 million plus by the end of 2018, this is meanwhile nice, more and more sizable business with also a very healthy margin.

I pointed out already in August that OLED is no longer margin dilutive, neither to the group, nor to PM as a division. So, now, to your question on Gonal-f, which is a little bit more tricky. So, North America, we have seen double-digit growth. Key contributor there, very positive development. And there, in the U.S.

at least, biosimilars is much less of a threat to us than for example in Europe. In China, very attractive market, but we see somewhat an economic downturn. So, we are not too bullish at the moment, but still good business there. And overall, we definitely stick to the mid-single-digit growth until 2022 for our fertility’s portfolio. And don’t forget also, fertility is in most regions an out of pocket business, so it means not being reimbursed.

Operator: We will take our next question from Wimal Kapadia of Bernstein.

Wimal Kapadia: Could you just -- first on PM, your previous guidance for PM margins was around 30%. But, given the change in business mix, how should we think about the division moving forward, given the OLED is margin accretive like you just suggested and also growing quite nicely. And we know that Versum is also margin accretive. And then, tied to this, just a comment you made Marcus on mid-single-digit growth for Semis.

You previously guided to a 19 to 22 CAGR of mid to high-single-digit growth. Should we now think of it as a mid-single-digit growth guidance, looking from 2020 to 2022, given that Versum will be in numbers in the 2020 base? And then, my second question is on Mavenclad. The slide on how revenues are recognized is very helpful. Can you provide a little bit more color on what that means for 2020 and 2021 for the product? Should we expect to achieve peak sales much sooner than the patent expiry, i.e., we have a very strong growth in 2020, 2021, and then we see sales being reasonable flat beyond that period? Thank you very much.

Marcus Kuhnert: Thanks, Wimal.

First of all, addressing your PM question on the margin guidance. So, we have given the guidance for the legacy Performance Materials portfolio excluding Versum that we said we would not fall below the 30% going forward. What is obvious or what is from today’s point of view, the fact is that Versum will be margin accretive to our overall portfolio, because the standalone margin of Versum is slightly higher. And we should also factor in the synergies of €75 million cost synergies only that we have already committed to. So, that means the Versum -- full consolidation of Versum since October 7 will give us some protection and some tailwind, when it comes to protecting the 30% margin going forward.

We should also however not forget, we have made this commitment in July 2018, and since then also some things have happened. The semiconductor market is now going through a temporary weakness. Please note that I stress the word temporary because we definitely believe this will come back to good growth and development in 2020 but still. And, we are facing at the moment the pretty lackluster environment in the automotive space, which is pretty significantly affecting our pigments business, which was not so much on the screen in July 2018. The only thing I want to express is that is that there are some additional challenges also that we have to master and to cope with.

We have put very strong focus on the last couple of months to stress cost consciousness and cost discipline not only PM but through the entire group. And all this taken together, I would say today, we clearly commit to the 30%, to the minimum level of 30% margin in Performance Materials. However, when we come to March 2020, we’ll give you a more detailed outlook for 2020 then having also a better understanding how the Semicon market is going to develop, and where we stand in terms of our endeavor to turn around pigments as quick as possible. On your second question, I’m not sure that I recall it rightly, you were referring to the Versum CAGR, I think 2020 to 2022. Was it right, Wimal?

Wimal Kapadia: Just that in the past you’d guided to Semis as business ex Versum growing between ‘19 and 2022, between mid and high-single-digit.

But, the comment to the previous question was mid-single-digits. So, should we think of the guidance moving forward as mid-single-digit for Semis?

Marcus Kuhnert: No, Wimal. So, our mid-term guidance for Semiconductors stays unchanged, mid to high-single-digits. So, no reason to take this down at this point in time. So, we stick to it.

And last but not least, on Mavenclad -- sorry, what was your question on Mavenclad, Wimal?

Wimal Kapadia: Sure. So, in the slide deck, you’ve given an example, an illustrative example of how you recognize the revenues for the product. But, I want to get a little bit more color on what that means for 2020 and 2021? Should we -- so should we expect the sales to ramp up quite fast pre patent expiry and then see more steady sales? Just trying to some contract for what the growth profile should look like.

Marcus Kuhnert: Yes. So, we are seeing -- let’s say, we are now still in the ramp-up phase.

So, that means we have year-to-date 2019 recorded €194 million; we have guided for €300 million by the end of this year. You should expect this dynamic to continue into 2020-2021. We would not provide, at this point in time, the more detailed view going forward, and really phasing and timing of the exact ramp up to the peak sales number of €1 billion to €1.4 billion. You should just note that while we have given you the face recognition, so how we recognize sales, independence on let’s say the 2 times prescription and that we only record sales obviously in year one and two of the active treatment period for the patients, you should not forget that obviously also when you get new patients on board, yes which then will have the year one and year two, while OLED ones have the year three and year four. So, we do not definitely do not expect let’s say reaching a plateau soon, neither in Europe nor in the U.S.

So, you can expect to see a continuous ramp-up of sales. I mean, otherwise, we would also have run into troubles to reach our €2 billion in 2022. So, we need to see further sales ramp up, and that is expected what we believe for 2020 and 2021.

Wimal Kapadia: Okay, great. Thank you very much.

Operator: Our next question comes from Jo Walton of Credit Suisse. Please go ahead.

Jo Walton: Thank you. I’m going to chance my arm and ask you to think about some of the pushes and pulls as we move into 2020. And in particular, what sort of signs we might look for a recovery in the Performance Materials business? You’ve talked about semiconductors returning to growth in 2020.

Do you think that for the full year it will have returned to growth, or will it be a continuing decline probably in the first half of the year? I’d also like to ask if you’ve got any initial observations at now that you own Versum as to whether it’s exactly as you thought when you got it, and whether Versum sales have been equally impacted as the rest of the sort of the semiconductor business? So, when we think about Versum’s contribution, it will be slightly lower than perhaps we might have expected as we move into the next year, and whether that’s also true at the profit and the sales level? Thank you.

Marcus Kuhnert: Yes. Thanks for the questions. Let’s start first with the recovery. So, as we said, we think that the Semicon market will come back in 2020.

Please do not forget that we were still in the first half year of 2019 enjoying the effects from the capacity ramp-up investments in China. That means in the first half of 2020, we are still running against pretty tough, pretty high comparables. At the same time, we would expect the Semicon market to take up speed or drive regularly. So, that means it is eventually fair to assume that H1 2020 will still be negative. However, H2 then should be positive and the growth in the second half of the year should slightly at least overcompensate the decline in the first half of the year.

That is our current view. If you look a little bit on the sector, for Liquid Crystals we expect the decline to continue further, however not at the same pace like at the moment, because at the moment we are still coming from as I said from a very high point that we have reached mid of the year 2019. But you can expect Liquid Crystals to declining further. On Semicon, as I said, we think that at a certain point in time in 2020, we are definitely back to growth, the earlier the better. And we are working hard on turning around pigments.

So, here, we believe that 2020, we will have at least hopefully stable business in pigments and that should all add up to slightly growing PM business in 2020. On Versum, we have actually no big new insights now compared to what we have seen in the period where we were let’s say between signing and closing, and when getting in touch with them earlier this year. So, the business there, from our point of view, is still in relatively -- or in good shape. We are heavily now working on the integration. The big focus at the moment is threefold, first of all, customer integration, keeping the top-line intact and of course now substantiating the synergies with very, very detailed measures, monitoring them following up to fully deliver on that front.

And we see Versum sales basically similarly impacted from the overall market weakness and what we see or observe on our own semiconductors portfolio and on the somewhat -- I don’t know, the sales number that we have given for 2019, €270 million, please do not forget that we do not record Versum a full quarter in our books, but only 86 days. So, we have closed only on October 7th. So, basically, we are missing one week. So, this might also add a little bit to normally somewhat slightly higher number that you might have expected.

Operator: We will take our next question from Simon Baker of Redburn.

Simon Baker: Three quick ones, if I may. Firstly, for Udit. I wonder if you could give us some idea on the level of visibility and your expectation for the duration of the new modalities growth within bioprocessing? We can see certain potential indications that could take almost 50% of current global capacity. So, it feels like the potential upside is enormous. But, I just wonder how much visibility you actually have on that? And then, moving on to Healthcare, it’s been an unusually busy week for lupus.

So, I wonder if you could give us an update on your development plans for an evobrutinib and atacicept. And then, finally, one for you, Marcus, just on the LTIP impact on net financials. I wonder, if you could just remind us exactly how this arises and the potential for smoothing or hedging that risk in future?

Marcus Kuhnert: Udit, do you want to start?

Udit Batra: Sure. Thank you Simon for the question. And I think you’re totally right that there is a terrific, terrific momentum in the novel modalities area.

But, I would present two facts, one in support of your argument that there is a lot of momentum. In our services business between 30% to 40% of the new tests are in the novel modalities area. So, that tells you how much of the new testing protocols are in that particular segment. I mean, it’s a small part of our overall business, but it also gives you an idea of the leading indicators. However, on the other side, I would caution against assuming that the growth in bioprocessing or in Process Solutions is stemming from novel modalities now or anytime in the near future.

The mAbs growth is by far the lion’s share. Over 90%, I would even say 95% of our growth comes from the continued strength in monoclonal antibody consumption. And you’ll recall the chart that I presented almost a year and a half ago on the double-digit volume growth of mAbs. I mean, we seeing that play out. And you see that if you just look at our portfolio and the growth -- where a growth comes from, it comes from our standard filtration products, downstream filtration products, it comes from cell culture media which is used in monoclonal antibodies, it comes from single-use bioreactors, which has been used in monoclonal antibodies.

So, the novel modalities are growing almost double the rate of mAbs but from a very small base. So, from a growth contribution perspective, I would say over the next four or five years, you should not expect that trend to change. Yet the trend is unmistakable that you’ll start to see a pretty nice trend build up that should continue to strengthen this market for a very long time to come.

Marcus Kuhnert: Okay. I continue, Simon, with your question on the LTIP.

So, LTIP, just to wrap up or to give you a short recap, is our long-term incentive program for max higher management levels. We have across the Company, so it’s not only a problem for the executive board, it’s much broader. We have roughly 3,500 eligible managers within the group receiving LTIP. LTIP is consisting of -- 50% of the remuneration is based on the achievement of internal KPIs, which our -- let’s say our most important steering KPIs and the other 50% is depending on the relative share price performance, Merck versus the DAX as a reference index, the German DAX. The valuation of the LTIP is an option valuation, and the time value component of that option, this is primarily the thing that is entering into the financial results.

And as you may know, options valuation contains a lot of different parameters which make the option valuation and of course also the share price development in the future, very, very difficult to predict. Unfortunately, that adds some kind of volatility to our financial items, which we neither can hedge to be honest and which we can also not really reliably predict. What you can assume, however, is that what I said during the presentation, that in times when we have bigger disparity between the Merck share price and the DAX, you can assume also bigger fluctuations in the LTIP. But other than that, as I said, it’s really, really basically not possible to give some kind of rule of thumb to estimate this impact. And we also cannot really hedge it.

So, we can only then explain what happens. And also in Q4, we had this earlier -- the LTIP effect might be there. However, obviously, it can also be positive or beneficial for the P&L. However, we are, honestly we are more happy if it’s negative. What you should also have in mind eventually is that what you see in the P&L is a delta and it is -- the effect is especially strong.

If the delta in one year goes in one direction and in prior goes in the other direction, then you see the effect especially strong. And unfortunately that was exactly the case in the third quarter, and that is why the effect this time is so significant. So, on evobrutinib, so let’s start with systemic lupus. We will have data in-house in late 2019. And this is the primary completion date.

So, also keep in mind we need a little bit more time then to read this out. So, the readout would then be in early 2020. Then, so after this readout, we will see where we stand and then also how we move forward, and that is highly depending on the outcome. The SLE is basically that part of the evo program, which is high risk, high reward product. And we will give you an update once we know more.

On atacicept, we already said at the Capital Markets Day that we actually would not continue with atacicept on our own. That is one of the typical cases where we say with regard to pipeline prioritization, we would focus to spend somewhere else in more strategic areas of the pipeline. However, so if we would be able to find a partner, let’s say externalize it in some way, we would be open for that.

Operator: We will take our next question from Daniel Wendorff of Commerzbank. Please go ahead.

Your line is open.

Daniel Wendorff: Good afternoon. And thanks for taking my questions. A few on Life Science, please; one on Applied Solutions. And I wonder whether you could outline the contributions actually coming from lab water solutions and advanced and analytical.

And maybe an add-on to this one, if you think of the type of customers for your Milli-Q IQ 7000 platform, who -- what type of customers are actually buying this mainly? And that would be my first question. And my second question is on the China growth and Process Solutions. And you mentioned, Udit, that a big project also contributed to that. I wonder what percentage or what level of growth did actually went into big project and what would you say was the underlying growth of the Chinese market for Process Solutions. And eventually -- no, that’s it actually.

Yes. Thanks.

Udit Batra: Thank you. Thank you, Daniel. Let’s start with lab water Milli-Q, lab water and AA.

I mean, these are very two very dynamic businesses. I mean, lab water as you know is benefiting from the launch of Milli-Q IQ 7000 from last year and our consumables are growing are pretty nicely. So, Q3, we saw growth in the high single digits, and year-to-date is similar, a bit of acceleration in Q3 from let’s say 7.5% to 8.5% or so. And then, in advanced analytical, which is our analytical standard business, this has been doing extremely well. I mean, it really picked up momentum in this particular quarter in the low-double-digits, and for the year-to-date it’s in the high-single-digit range.

Your next question was around our customers for Milli-Q IQ, in particular, or lab water in particular. We usually don’t give out portfolio and customer information at that level of granularity. But just to give you an idea, our customers for this kind of product are across the board. So, for instance, there will be customers in pharma and biotech that end market has been growing nicely in double-digits. So, you can assume the same for lab water, industrial and testing.

These are industrial laps, food and beverage laps, and there you see a bit of a high single-digit growth. You would have also customers in academia. We expect there the growth to be again in the high-single-digits. Although that market as a whole is rather flattish. We feel, given the new launches, people are replacing their lab water tools.

The next one is diagnostics. Again, you’ll see a flat to at least low-single-digit growth. So, you see across the board strength in demand for lab water. And here, what you really need to think of is anyone who’s doing an experiment in the lab, wants purified water. And that’s the most ubiquitous reagent in the lab.

So, any lab wants it and if you have a better platform, and this has come after about a decade or so, people are really rapidly replacing it in any laboratory across the board. The reason I read out those numbers is to illustrate that it’s a very broad-based growth. And we don’t have a lot of volatility. Now, to your China question. Look, given that we’ve seen such a dramatic growth, I mean, we dug in quite a bit deeper, indeed there are some large projects, like we saw last year.

But if you just compare -- the way to look at it is to compare the year-to-date growth versus the Q3 growth. The year-to-date growth for China is roughly 20ish percent. And you see 23ish percent or so, 24% or so growth for Q3 itself. So, you see a bit of momentum build up. You see the biggest change in momentum in Process Solutions where the growth went up, I would say by roughly 50% from what it used to be year-to-date before then.

And that’s largely due to some placements of our single use and hardware. And you saw similar trend in Q4 of last year, where we saw an uptick in Q4 with about €50 million or so increase in sales in Process Solutions. So, indeed, it has to do with some one time orders. So, that’s why I was questioning, extrapolating that into Q4 and the trend that’s ongoing. That said, I want to just take a step back and say look, we’re very confident about this market.

The end markets look extremely, extremely solid in China and globally for that matter. And we definitely believe that we can continue with our strong portfolio and really have a lot of confidence in this team. And we can continue our strong execution and continue to outpace this market organically. And then, that should flow through to the bottom line with the margin expansion that we’ve talked about. Thank you very much for your question, Daniel.

Operator: We’ll take our next question from Keyur Parekh of Goldman Sachs. Please go ahead. Your line is open.

Keyur Parekh: Three questions, please. One on pharma, one on capital allocation and then one for you, Udit.

On Healthcare, would you expect the MS franchise to be a growth franchise in 2020, or would you expect the drags on Rebif to not be enough to offset the growth in Mavenclad? That’s question number one. Second, on capital allocation, Marcus, can you just remind us of your priorities, and can you reiterate your commitment to no big transactions over the next couple of years, or do you think if an interesting asset was to come along, there might be some room for you to rethink that? And then, thirdly, for you Udit, obviously, you’ve had a phenomenal performance the last five years, both as it relates to growth and to margins. How sustainable do you think both of those are growing faster than your peer group and maintaining the margin that you have under Delta on the margin? Where do you see the biggest risk growth or to margins? And what do you think might drive that? Thank you.

Marcus Kuhnert: I’ll start with the Healthcare question, so the first one is an easy one. The answer is yes.

We are very confident that the neurology and immunology franchise in 2020 will be growing. And the -- so to say, the seizures will go up further. That means the outperformance of Mavenclad over Rebif decline will increase going forward. We have seen a 2.3% organic growth already in the Q3. This will widen further to the positive in Q4 and even more in 2020 when Mavenclad is further gaining traction and when the sales are going up.

Second, your question on strategic capital allocation. So, as outlined, now after the closing of Versum, if you look on the year-end 2019, we have a net debt to EBITDA ratio of roughly three times, we have €12.5 billion net financial debt and we have clear commitments out there to the rating agencies to restore our financials and to bring our cash flow from operations to debt process and our net debt depending on which angle you’re looking on it. Back to numbers that are actually supporting our current credit ratings, which have not been touched at all after the Versum acquisition. So, we expect this to last roughly roundabout two years. And our agenda for the next two years is deleveraging.

And we would have a little bit money left for small M&A, but don’t think that it is more than €150 million to max €200 million per year. From 2000 -- or after 2021, we would have regained financial flexibility also to think about some bigger things if there are opportunities which make strategic sense, and which would also represent an attractive financial case.

Udit Batra: Keyur, thank you for your question. I guess, it is the number one questions we’ve been getting for a while now. Firstly, just reviewing the sources of growth from an organic growth standpoint, I mean, you would recall that we talked about a portfolio advantage.

So, we have certain portfolios that give us an advantage versus the broader market, which goes 4% to 6%. This is not just bioprocessing, but it also includes parts of our Applied Solutions and Research Solutions businesses as well. And the second is executing at a certain high level. Let me dig just a little bit deeper to give you some color and give some color to what’s happening behind the scenes and what choices we have made. If you recall, back in 2015-2016, we shared our strategy.

And the strategy really took our portfolio which is 12, 13 business units and them on a market share and market growth chart. Portfolios that were growing faster than the market where we had good market share, we doubled down on and we invested quite a bit in these areas. This is bioprocessing, this single use. And here, you’ve seen the growth go up dramatically from 20% to 30%, or 20% back in 2016 and 13% at the end of 2018 and that growth continues to this day. Then, we dug deeper into the portfolios where we had good market share, but we were growing below the market.

This was Life Science chemicals. And here also through Life Science chemicals and reagents, and here through deliberate effort we suffered the turnaround of our chemicals business. And this year you’ve been seeing the nice performance of our workflow tools business. In fact, yesterday I was with the team and we were -- we had a lot of visitors from different customers. And we were sharing our Stericup product, these are filtration products that are used in laboratories.

And here what we’ve done is reduced the plastics footprint by over 50% with our new launch of our platform. And that product is picking up very nicely and that’s very good gross margin as well. So, really it’s a some of small parts. And then, finally in the Applied Solutions area, we felt we were not the best owners for our cellular analysis business. That’s a nice business but we were not the best owners.

We had low market share, low growth. And we parted raise and sold it to Luminex. So, we are very actively managing our strategy and focusing on allocation of resources. And when you think about risks to the sustainability of growth, I will turn your attention to some of the growth vectors that I’ve talked about in this call and also in the past. We had identified process development and CDMO especially as a tool to plant our consumables way back in 2016 when we build up our business unit in gene editing and novel modalities, right.

We’ve invested in our viral vectors, contract manufacturing business, we have an antibody drug conjugate contract manufacturing business that we’ve invested in and we have some really nice customers there. We are a leading producer of toxic payloads for antibody drug conjugates. We’ve invested in that capacity in Verona and in Madison. We’ve invested in our end-to-end bioprocessing and process development business out of Martillac, France. We’ve opened sites in Shanghai and in Burlington and outside of Austin.

So, we’ve identified growth vectors quite early and we’ve invested in those through our CapEx early on. And then, in e-commerce, when we took over Sigma-Aldrich, we already knew this was a leading e-commerce platform. First, we put all our Milli-Q products on to the platform. And then, we invested further in making the content better, making the experience better and we are continuing our journey and stay tuned. I mean there is a lot more to come there.

And then finally, I would be remiss if I didn’t mention our investment in Asia. So, you see it’s a very deliberate effort to try and identify these growth areas. I mean, Life Science tools is not a business where you have big one time big events that really make things go up. None of our customers is larger than 2% of our sales and none of our products is larger than 2% of our sales. So, it’s a team sport, where the whole team has to rise.

And finally, let me conclude by saying that the growth is very broad-based. It is not just in Process Solutions and bioprocessing. In fact the increased momentum that you see is because Research has turned around and Applied has ticked up as well. And that’s showing up in our top line. And to the margins, as long as the growth is -- as long as you focus on the growth in high gross margin business and we do what we’ve done with our costs with the team that we have.

We are seeing a nice margin expansion. I mean, basically, we are very thoughtful about it, we discuss it at a group level, at the Board level quite a bit. And we’re finding room to invest while seeing a margin expansion with the stellar growth. So, unfortunately, I’m not going to give you a lot of ideas on weaknesses that I see. I mean, think, it’s a question of just managing deliberately where do you see the weaknesses and acting on them rather rapidly.

And that’s what we’ve shown over the last five years. And as long as my team remains with me, I’m very confident that we will continue our reasonable track going forward. Thank you for your questions.

Marcus Kuhnert: I think, we are well over the hour. We have time for one more question, please.

Operator: Our last question will come from Falko Friedrichs of Deutsche Bank. Please go ahead. Your line is open.

Falko Friedrichs: Yes, hi. It’s Falko from Deutsche Bank.

One quick question then from my side. In Life Science, you showed us the thee areas of high interest within a complex biologics for that single-use viral vectors and ADCs. Could you quickly share your current market positioning in each of these fields with us?

Udit Batra: We don’t share the details on the market share, but I can simply tell you in the viral vector area, we are one of the top three players; in ADCs, we are one of the top two players for producing these products. So, I think that is as much detail as I can give you today. Detailed market shares for these nascent markets don’t necessarily exist even today because every day you see some expansion or the other happening.

You can safely conclude that there is more demand than supply for both of these types of products today in the market and also for process development services in mAbs.

Constantin Fest: Thank you. Thank you so much for joining this call today for following the MERCK journey. We look now much forward to meeting many of you in person in the upcoming road shows. Thank you and good bye.

Operator: Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.