Operator: Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on the third quarter 2021. As a reminder, all participants will be in a listen-only mode. We now hand you over to Mr. Constantin Fest, Head of Investor Relations, who will lead you to today’s conference. Please go ahead, sir.

Constantin Fest: Thank you, Tracy. Very warm welcome, dear ladies and gentlemen, to this Q3 2021 results call. My name is Constantin Fest. I’m Head of Investor Relations here at Merck. And I’m delighted to have here with me today, Belén Garijo, Group CEO; as well as Marcus Kuhnert, Group CFO.

Also joining for the Q&A of this session today are Matthias Heinzel, CEO of Life Science; as well as Peter Guenter, CEO of Healthcare; and Kai Beckmann, CEO of Electronics. In the next few minutes, we would like to run you through the key slides of this presentation and then directly start the Q&A. Having said this, I would like to now hand over to Belén to the presentation. Over to you, Belén.

Belén Garijo: Thanks, Constantin and a warm welcome everyone also from my side to our Q3 earnings call.

I’m now on Slide 5, starting with the highlights. Overall, Q3 has been another strong quarter, fueled by significant growth of Big 3. Life Science registered another record quarter with Process Solutions leading the pack. Bavencio beat consensus, and Mavenclad is right on consensus if we adjust for a small onetime effect that we will comment later. And Semiconductor Solutions delivered solid debit growth in the quarter.

Organically, our Group sales increased by 11% and EBITDA pre rose by 13% on an underlying basis. That is excluding the Biogen provision reversal that we actually did in Q3 last year. Currency turned into a small tailwind, resulting in reported sales of €4.97 billion and EBITDA pre of €1.55 billion. Stepping back to a strategic perspective. We had the opportunity to discuss with all of you our plans and priorities for the years to come during our Capital Markets Day in September.

There, we highlighted our ambition to accelerate our science and technology leadership and drive efficient growth through targeted and highly disciplined investment. Our investment focus will be on the Big 3. And just as a reminder, we aim to reach about €25 billion revenues by 2025. We saw very good progress in Q3 and based on our strong performance, we are raising our 2021 guidance again. We now expect net sales in a range of €19.3 billion to €19.85 billion.

EBITDA pre in a range of €6 billion to €6.3 billion and EPS pre in a range of €8.5 to €9% and more details on our assumptions will be shared later. So moving into Slide Number 6, I will provide additional color on our strong Q3 performance by business sectors. As I mentioned already, all the three business sectors contributed to delivering a very solid organic growth in Q3. Life Science emerged as the fastest growing, with sales up to almost 18% organically, followed by Electronics with growth of 10.3% and Healthcare with 4.1%. Currency turned into a modest tailwind in Q3 for both revenues and EBITDA pre and across all three business sectors.

Looking at the sectors in more detail starting with Life Science. Please note that performance was broad-based with significant contributions from both COVID-related business and solid performance also of the core business. We saw double-digit organic growth across all regions and positive contributions by all customer segments. From a portfolio perspective, Process Solutions remains the main growth engine with organics up by 28%. Research and Applied also came in robust with organic sales growth in the high single-digits.

We continue to make progress in terms of increasing output in bottleneck areas and we have recently reported on several important milestones concerning the acceleration of our CDMO activities in novel modalities. Turning to Healthcare. Our new launches, Mavenclad, Bavencio and tepotinib, showed the strong man tune with combined sales rising to over €300 million, up over 60% organically. The Fertility franchise, Erbitux and a significant part of our CM&E portfolio also continued to grow, although this was partially offset or more than offset, I should say, by well anticipated declines of the Rebif and temporary effects of China VBP on Glucophage. In Electronics, double-digit organic growth was mainly driven by Semiconductor Solutions, which generated 22% higher sales on positive trends in both semi materials and DS&S.

Ongoing declines in Display Solutions were to a great extent offset by further business recovery in Surface Solutions. On earnings, EBITDA pre came in at €1.5 billion, leading to a strong margin on sales of 31.2%. Excluding the Biogen provision reversal, which boosted earnings in Q3 2020, EBITDA pre was up by 13% organically, and that grew faster than sales due to a positive mix, strong operating leverage and last but not least, rigorous cost discipline. Moving to the next slide. You see the sales breakdown and growth by region.

Among our three largest regions, Europe was in the quarter, the fastest growing with sales up 16% organically, followed by North America and Asia Pacific, both growing 9% organically. Life Science and Electronics delivered double-digit organic growth in all major regions while Healthcare showed double-digit growth in Europe and Asia Pacific. Let me emphasize that the strong Big 3 growth was supported by all major regions, highlighting their global potential. As you also see on the slide, our geographic footprint remains nicely balanced with Asia Pacific contributing 36% to Group sales; Europe, 29%; and North America, 27%. With this view, let me hand over to Marcus for more details on our financial performance, and I will come back for the guidance.

Thank you.

Marcus Kuhnert: Many thanks, Belén, and a warm welcome also from my side. I’m now on Slide Number 9 of the presentation for an overview of our key figures for the third quarter. Overall, we are very pleased with our performance in Q3, showing strong growth and also a nicely leveraged P&L in underlying terms. On a reported basis that is including modest FX tailwinds, Group net sales increased by 11.8% to €4.97 billion.

EBITDA pre declined by 8.7% to €1.55 billion. EPS pre was down 4.3% to €2.24. Please keep in mind that EBITDA pre last year was significantly boosted by €365 million. This is the equivalent to a €0.63 EPS-free contribution from the reversal of a provision in connection with the patent dispute overridden, so the so-called Biogen provision. Excluding this effect, EBITDA pre increased 15.2%, implying an underlying margin expansion of 120 basis points and EPS pre increased by 31%, further supported by an improved financial results and a lower effective tax rate.

Please also note that the termination of the alliance with GSK had a slightly negative effect on our P&L in Q3. We recognized the remaining upfront payment of about €75 million in the third quarter. Out of this, about €50 million was accelerated due to the termination, which was more than offset by an accrual for outstanding development costs in connection with the winding down of various studies and this totaled about €70 million. That said, operating cash flow was strong, up 25% to €1.5 billion, reflecting significant underlying earnings growth paired with solid working capital management. Compared with the end of Q2, net debt was reduced by over €800 million despite higher CapEx and investments in intangible assets, while net debt to EBITDA improved further sequentially from a multiplier of 1.7 to now 1.6.

So let’s move on to Slide 10 for a few comments on our reported earnings figures. While EBITDA pre declined €149 million year-on-year, the EBIT declined €119 million. In underlying terms, which means excluding the Biogen provision reversal, EBITDA pre increased by €246 million and EBIT by €260 million, up 31% year-on-year. Percentage increase in underlying EBIT was more pronounced compared with underlying EBITDA pre because of lower adjustments this year. The financial result improved significantly due to positive effects from deleveraging, hence, lower interest expense and also lower LTIP provisions.

The effective tax rate was 23.1% for the quarter, fully in line with our new guidance range for 2021, which we introduced in May to reflect a more favorable country mix in turn related to the very strong performance of Life Science. As a result, reported net income totaled €761 million in Q3 and reported EPS came in at €1.75. And with this, let’s move on to a more detailed review by business sector, starting with Life Science on Slide Number 11. Life Science delivered another record high in terms of sales, which totaled €2.25 billion in Q3, up 17.1% organically. Here, contributions from the core business and COVID-related sales were similar at about 8% and 9%, respectively.

But the moderation of growth compared with Q2 was no surprise, reflecting tougher comps for both core and COVID. From a portfolio perspective, Process Solutions remained the key growth engine with sales up 28% organically. Here, about two-third of the growth related to COVID and above one-third to the core. Growth was actually broad based across all business lines with bioprocessing as the main driver. Importantly, sales continue to increase on a sequential basis given further productivity gains and successful ramp-up of new capacities in Denver for single-use and Jeffrey for filtration.

Please also note that order intake was robust, still growing faster than sales at over 30%. Turning to Research Solutions. Organic growth came in at a very healthy 7%. This was largely driven by ongoing strength of the core business against rising comps. The COVID-related growth contribution was relatively small at just plus 1%.

In fact, COVID-related sales in Research Solutions were below Q2 as expected and should fade further from here. Applied Solutions reported sales up 8% organically, entirely driven by unknown recovery of the core. Just as a reminder, COVID-related sales in Applied are negligible. In terms of customer segments, Pharma and Biotech was the strongest, followed by industrial and testing, both growing in the double digits. The agnostics was in high single-digits and academia in the low single-digits.

Geographically, we saw double-digit organic growth in all regions. In regards to earnings, EBITDA pre rose 29% organically with a margin up 360 basis points to 36.6%. This was mainly driven by a positive product mix, including a higher share of COVID-related sales as well as favorable pricing and operating leverage. Compared with Q2, the margin was down slightly, reflecting investments for growth and significant progress on hiring to boost capacities. And with that, let’s continue with Healthcare on Slide Number 12.

Overall, Healthcare delivered solidly in the third quarter. Sales increased 4.1% organically with a moderate decline in the established portfolio more than offset by over 60% growth in new product sales. By franchise, oncology was up 26% organically and this was driven by the further strong uptake of Bavencio in first-line bladder with sales increasing 2.5 times to over €100 million in Q3 as well as healthy 6% organic growth of Erbitux. Please note that Erbitux sales did not include any contributions from the temporary supply agreement with Eli Lilly, meaning we now expect the remaining €10 million benefit in the next few months. Our (Ph) franchise showed slight growth of 1% organically as declines of Rebif in line with the interferon market were more than offset by strong growth of Mavenclad, up 33% organically despite the dampening effect of the recent COVID-19 wave from the dynamic market recovery.

Our Fertility business delivered robust growth of 7% organically, driven by healthy underlying market dynamics and catch-up effects from last year. Last but not least, sales of our CME franchise declined 3.4% as the volume-based procurement impact on Glucophage in China could not be offset by solid growth in other regions and products. In terms of our pipeline, let me highlight that we recently announced Phase III recruitment completion of our blockbuster candidate, evobrutinib, a BTK inhibitor and continue to expect data in-house by the first quarter of 2023. For a comprehensive review of our pipeline, we invite you to join our R&D leadership at the R&D Update Call on November 22nd. Back to Q3 and continuing with earnings.

EBITDA pre declined 42% organically. However, as already said, this was due to the Biogen provision reversal last year. Excluding this effect, underlying EBITDA pre was about stable with a solid margin of 30.3%, slightly down year-on-year in underlying terms due to R&D phasing and effects from the GSA determination, as explained earlier. In terms of non-recurring income, please note that next to the €75 million upfront recognition, we also booked a high single-digit euro million amount from active portfolio management in Q3. For the full-year, we are adjusting our guidance for non-recurring income to reflect the increased upfront recognition from GSK, while leaving all other elements unchanged.

That is we expect about €125 million from GSK versus about €100 million indicated previously, about €50 million in milestones for Bavencio, which has been realized already in Q1 and a low to mid-double-digit million euro amount from active portfolio management. Keep in mind that the GSK Bavencio components are fully realized and income from active portfolio management is already well in line with its target corridor at €30 million after the first nine-months. Therefore, you shouldn’t expect any meaningful non-recurring income in Q4. Turning to Electronics on Slide 13. Overall, Electronics had another very robust quarter.

Organically, sales increased to 10.3% to a record €937 million. As such, growth was comparable and already very strong Q2, although the drivers were different. That is, we saw further acceleration in semiconductor solutions, offset by a weaker momentum in Display and Surface Solutions and the driving comps. Taking a closer look at the business units and starting with our main growth engine, Semiconductor Solutions. Here, sales rose by a remarkable 21% organically which is well ahead of our upgraded midterm ambition of 7% to 10%.

The largest absolute contributor within Semiconductor Solutions was our materials business which posted double-digit growth amid continued strong underlying demand. In addition, we benefited from positive project phasing in DS&S which we expect to continue in Q4 and also until end of next year. Sales in Display Solutions were down 7% organically, with the ongoing trends in liquid crystals, partly compensated by strong double-digit growth in the period. Last but not least, Surface Solutions delivered organic sales growth of 10%, mainly driven by strong recovery in the cosmetics business. In terms of earnings, EBITDA pre came in at €297 million, up 11% organically and leading to a margin of 31.7%.

This 130 basis points increase in the margin was supported by sales growth, ongoing realization of synergies and further rigorous cost management backed by the Bright Future initiative. Turning to Slide 14 for a few remarks on our balance sheet as per end of September. The €2 billion expansion compared with end of last year is mainly due to the strong growth of our business and currency effects. Cash and cash equivalents increased on the back of strong operating cash flow. Financial debt declined by over €1 billion, given significant net repayments.

The goodwill increased mainly due to foreign currencies and net working capital increased on higher sales. As a result, our equity ratio increased from 41% to 47% in the first nine-months of the year while net debt-to-EBITDA pre ratio improved from 2.3 times to 1.6 times. Let’s have a closer look at cash flow on Slide 15. The operating cash flow came in strong at €1.5 billion, up 25% year-on-year. This was mainly driven by a significant increase in underlying earnings, plus the sound working capital management.

Cash-out for investing activities was reduced, however, mainly due to temporary investment of excess cash in the third quarter of last year. In fact, CapEx was up 24% year-on-year at €295 million, in line with our full-year guidance and reflecting ongoing capacity expansions to support the strong growth of key businesses. Finally, the significant increase in cash out for financing activities can obviously be explained by the further repayments of bank liabilities in commercial papers, as mentioned. And with that, let me hand back to Belén for the outlook.

Belén Garijo: Thank you, Marcus.

Before turning into the full-year guidance, I would like to offer a broader view on the topic of inflationary and supply chain pressures since this has been a topic of for (Ph) some of you, and we have received several questions in this respect. So our view is clear. We believe we are well positioned to manage profitability amid higher input volatility. First of all, gross margins are generally attractive as you see on the slide, providing us with a solid starting point. We enjoy the highest gross margin in Healthcare and while pricing flexibility is lower in comparison to the other sectors, manufacturing costs are also lower and our exposure to critical raw materials is limited.

In addition, for Healthcare, the share of discretionary spend is higher providing greater flexibility on cost management as we have done to-date. In Life Science, gross margins are also very healthy and we are closely monitoring inflation and potential effects on labor costs in some countries, selected raw materials and construction services. The good news is that material shortages are limited so far and our ability to pass on higher input costs is generally solid. As we told you before, pricing in Life Science and this is an important point, is currently around the higher end of the historical 1% to 2% range and we expect to be slightly above that range going into next year. In Electronics, input cost pressure are slightly more relevant.

We are actively managing our supply chains, qualifying additional suppliers and building safety stocks whatever is necessary. We also aim in Electronics to minimize the impact through appropriate pricing measures within the overall industry framework. Last but not the least, let me repeat what we have told you before, our focus on cost discipline remains very high across the Company and has further increased during the pandemic. We are very closely monitoring inflationary and supply chain pressures, and we believe we are acting from a position of strength when it comes to navigating this situation. Our gross margins are attractive, our market positions are strong, and our system and processes are designed to flexibly adapt to a rapidly changing environment and effectively manage potential challenges to protect our profitability.

Moving on to Slide 18, a brief update on ESG. Within the past couple of months, we have been evaluating our path towards climate neutrality by 2040. We have been discussing what technologies, what processes and what investment might be necessary to deliver on our targets. As a result of this, we have recently signed a commitment letter from the science-based target initiatives, and our submission of the validation documents will follow before the end of this year. This decision will help us ensure that we are aligned with what the latest climate research deemed necessary in order to deliver on our climate targets.

We are confident that the science-based target initiative will confirm our plan by issuing a certificate to us in Q2 2022. Now into the guidance. I’m on Slide Number 19. Based on the strong quarterly results in Q3 and a positive outlook for the remainder of the year, we are raising our full-year guidance again. In particular, we now expect Group net sales in a range of €19.3 billion to €19.85 billion, EBITDA pre in a range of €6 billion to €6.3 billion and EPS pre in a range of €8.5 to €9.

At the midpoint, this corresponds to an increase of 2% on sales, 6% on EBITDA pre and 7% on EPS pre versus the previous guidance. To some extent, the guidance upgrade is driven by an improved currency outlook that is now assuming headwinds of 1% to 2% on both sales and EBITDA pre versus our previous guidance of 2% to 4%. In terms of organic performance, we have raised our target for organic sales growth from 12% to 14% to 13% to 15% and for organic EBITDA pre growth adjusted for the Biogen provision reversal from 21% to 25% to 26% to 29%. For an update on the outlook by business sectors, please go with me to Slide Number 20. In terms of organic performance and starting with revenues, we have become a bit more bullish on Life Science and to a certain extent, also on Electronics.

On earnings, we have slightly raised our outlook for Healthcare, although the main driver is, again, the operational performance of Life Science. On Life Science, please note that our upgrade is equally driven by the evolution of the core business as well as COVID-related sales. As such, we are updating our COVID sales guidance for Life Science to more than €1.1 billion coming from at least €1 billion previously. In turn, this upgrade is driven by COVID-related sales in Process Solutions, which we now expect at around €1 billion compared with at least €900 million before. Lastly, we are also raising our 2022 guidance for COVID-related sales in Process Solutions to around €900 million from at least €700 million in our previous guidance.

And this is because we have increased visibility and the inclusion of boosters for the broader population as well as pediatric vaccines. Turning to my last slide for today, which many of you are familiar with from our Capital Markets Day, this is just to remind everybody that we stay confident in delivering our long-term commitments towards 2025. We aim to accelerate further and raise the bar on everything we do. Our midterm goal is very clear and can boil down to 25 by 25. This means our goal is to deliver €25 billion of sales by 2025, adding more than €1 billion in sales organically every year through to 2025.

This represents an organic sales CAGR of over 6% at Group level. This will result from a significant boost on our investment with a very sharp laser focus on the Big 3 which are our key growth engines. Q3 is a testament to the tremendous potential of the Big 3, and we have made further progress in recent weeks, including the opening of our new viral vector facility in Carlsbad and the completion of the Phase III enrollment for evobrutinib, as Marcus already mentioned. We are confident on our Merck’s future prospects. We continue to mobilize our entire organization for efficient growth.

We are highly committed to creating a high impact-driven culture. We are poised to driving innovation powered by digital and data and we are committed to thinking and acting sustainably. Our Company has everything it takes to become the global 21st century’s science and technology pioneer. This is more than an aspiration, is our ambition. Thank you very much for your attention.

And now I will be happy to hand it over to Constantin for the start in the Q&A.

Constantin Fest: Thank you very much, Belén. With this, we are now ready to start the Q&A of the session. And with this, Tracy, yes, please, let’s start the Q&A. Thank you.

Operator: Thank you. Our first question comes from Richard Vosser from JPMorgan. Please go ahead.

Richard Vosser: Hi thanks for taking my question. So question on Life Sciences, please.

Given we saw a small margin decline in Q3 because of increased costs, how should we think about the margins in Q4 and into 2022 given this increased investment and maybe just on top of that, if I could add about COVID revenues in Research Solutions as well, how do you see those developing in 2022. I think there is about €100 million in that? Thanks very much.

Matthias Heinzel: Yes. Thanks, Richard. It is Matthias here.

Let me address your two questions. So first of all, on the margin, we expect the margin to come down gradually over time from the currently high levels, and we are expecting them to be in the midpoint between the pre-COVID situation, where we had it in the 31% range on the current highly elevated levels. And partially, that is coming from expected slower competition of COVID over the next several quarters. And as you rightly mentioned our continued investments into the business, whether it is CDMO, whether that is increasing in R&D. So I would expect that to come down over the next several quarters.

Obviously, that depends quite a bit on the COVID contribution going forward. On your second question, indeed, research contributed this year or got contribution from COVID with this year. Just to give you a ballpark number, it is in the range of €150 million, which is part of the €1.1 billion, which Belén mentioned. And we already see that declining as COVID testing comes down with increasing vaccination rates and we also expect that to decline going forward into 2022.

Richard Vosser: Thank you.

Operator: We will now take our next question from Matthew Winston from Credit Suisse. Please go ahead.

Matthew Winston: Thank you very much. My question follows on from Richard, and it is also around the COVID impact in Process Solutions in 2022. I think there was a Bloomberg interview this morning where you referenced €900 million for 2022 in Process Solutions.

There is obviously been quite a lot of investor concern across the market, Belén, about the impact that antiviral small molecules may have on vaccine demand. So I would be very interested if you could just give us some color as to how you have built up your assumptions for 2022 to get to that €900 million in terms of boosters, pediatric and other drivers? Many thanks.

Belén Garijo: Thank you, Matthew. I will give you the brief answer, and I will ask Matthias to build a bit further on the assumptions. Look, the market will continue to be volatile, but vaccines will remain a main stay of addressing the COVID-19 pandemic.

So we have built, As I mentioned during the introduction, assuming that vaccines will stay as such, boosters and broad population being committed to using vaccines. Matthias.

Matthias Heinzel: Yes. Thank you. First of all, I think we all welcome that we have an additional tool in our toolbox to fight COVID.

So specifically to your question, I have got three kind of main angles as we look at how COVID could unfold. Obviously, the first one is the prime vaccination. It depends on what target vaccination reach we can achieve. There is still a way to go, I think, especially if you look at the regions outside of the mature regions. Secondly, the age Groups, right, how far can we expect that to go.

I think we see certain regions and countries to certainly now include also children. That is kind of a determining factor. And I think very important, now the boosters. And here, we look at kind of three things. What will be the adoption rate? So how many of the people who got the first vaccination will get the booster.

The frequency, will it be every six, nine-months. But a very important aspect is the dosage. The dosage has been published from some of the M&A players and the dosage is half the level of the prime vaccination round. So that kind of is something we need to keep in mind as we look at the COVID impact next year. And then, of course, the unknown question is should there be or will there be a variant, which would require them kind of what I call the vaccine update, right, that you need to come up with a new kind of prime vaccine.

And then like Belén said, we have the antivirals obviously, a lot of volatility. The way I would look at it is also two additional angles. Angles 1 is kind of also the production availability from some of those antivirals and also the cost aspect. So if you take all of that into account and look into 2022, we believe that COVID and the vaccination will be still the prime line of defense if you will, and we will still be having a significant contribution. And I gave you the levers and obviously, depending on how these levers unfold, it will be in the range of the €900 million we provided.

Matthew Winston: Thank you very much.

Operator: We will now take our next question from Peter Verdult from Citi. Please go ahead.

Peter Verdult: Peter Verdult of Citi. Sorry about it, Belén.

One question, 1 clarification, please. Just Matthias on the supply bottlenecks, I asked this last quarter realize you are working hard to add capacities in new modalities. But in terms of filtration and single use, will those supply constraints be resolved in 2022 and then just a quick clarification. I think, Marcus, you said that evobrutinib data first quarter 2023. I saw the trial only just finished it was a two-year fixed follow-up.

So I just wanted to clarify the timing on Evobrutinib Phase III?

Matthias Heinzel: Yes, Peter, let me address the first question. And indeed, there is a lot of work going on in our teams to really what we call debottleneck. And as you have seen, I mean, we have seen a sequential uptick in our Process Solutions, and that is heavily attributed to the work we have done from the debottlenecking. We also have announced that we will, on top of those activities, come live with new capacity in single use, for example, in the first phase come live in a couple of months-ago will expand further in coming early next year. In general, I would say, I would expect there still to be capacity constrained, so mid of next year as this will continue.

So I would say, at least until mid of next year, we should we should have this kind of constrained situation. But all hands on been in Denver a couple of weeks-ago, the team is on it, and the hard work is going on to really release every product we can from our lines.

Marcus Kuhnert: Peter, just one second, then I hand it over to Peter Guenter. I said that we expect data in-house by the fourth quarter 2023, yes. But over to Peter for more details.

Peter Guenter: Yes. Well, I will not contradict you, Marcus. If the fourth quarter 2023 and in general terms, we are very happy, of course, with the having finished the enrollment of more than 2,000 patients in the pivotal Phase III trials and looking forward to have those data in-house and then of course at a speedy process to get the product a as fast as possible afterwards.

Peter Verdult: Thanks for clarifying. Thank you.

Operator: We will now take our next question from Sachin Jain from Bank of America. Please go ahead.

Sachin Jain: Alright thanks for taking my questions. Just one on Life Science as a follow-up to the prior. I wonder if you could just high-level comments to the underlying Process Solutions growth, we should, therefore, think about into 2022.

Should we think of an acceleration in the back end of the year as CapEx comes through or the existing growth rate being sustainable and I wonder if you could just try and get at that versus the trend year-to-date. So sort of based on your commentary, seeing roughly 10% underlying in third quarter versus mid-teens run rate, it looks like for the full-year? Thank you.

Matthias Heinzel: Yes. Hi Sachin, it is Matthias. Thank you.

So overall, I mean, we are very confident about the midterm guidance we provided for Process Solutions, which was in the low to mid-teens. And that was assuming kind of, if you will, a fading of the COVID contribution over the years. So as we move into 2022, we are very confident about that. I think one element is also that our order intake remains strong. The order book remains strong and especially also the order intake for the base business has continued to grow.

So that gives us confidence about the peers growth as we go into 2022. And obviously, also when it comes to CapEx, I mentioned just the project in most time for single-use. We are accelerating as much as we can. We had announced additional projects. We have announced projects when it comes to our, which feed actually into (Ph).

So we are pretty much accelerating as much as we can to get this new capacity online.

Sachin Jain: Thank you.

Operator: We will now take a follow-up question from Matthew Weston from Credit Suisse. Please go ahead.

Matthew Weston: Thank you.

That came through quicker than I expected. Belén, you referenced a temporary dip in Glucophage in your opening comments and attributed it to China VBP. I would be very interested - a temporary dip suggests a recovery. So I would be very interested in the timing as to when you expect that recovery? Was this a 3Q event or we just need to see volumes build over the course of 2022 into 2023?

Belén Garijo: Matthew, I will let Peter give you the details, but if you go back to our previous communication and the way we have forecasted the impact of GDP in Glucophage, this has materialized exactly as we predicted. So the impact is temporary, is definitely close to bouncing back and perhaps Peter can further illustrate the way we see it at the local level in China.

Peter Guenter: Yes, absolutely. Thanks Matthew for the question. So indeed, you may remember that of Glucophage hit Q4 last year. So this is going to annualize in the next quarter. And therefore, we are pretty confident that actually we are bottoming out as we speak, and you should see indeed growth as of Q4 onwards.

This being said, it is not only mechanics of the previous quarter. It is also a lot of hard work in the underground in China, trying to maximize the opportunities for the brand outside of the core hospitals. So I’m talking about retail, I’m talking about county hospitals and talking about primary care, community Healthcare centers. So there is a lot of hard work behind to make sure that we leverage every single opportunity in the next couple of years to maximize the potential of Glucophage. And then perhaps also to remind you that Glucophage in China is only a part of the reality.

We have a really very interesting double-digit growth quarter-after-quarter in other regions of the world, think about LatAm, think about Middle East, think about other APAC countries outside of China. So all-in-all, I’m pretty confident to see a growth in the future for Glucophage.

Matthew Weston: Thank you.

Operator: We will now take our next question from James Quigley from Morgan Stanley. Please go ahead.

James Quigley: Hey, thanks for taking my questions. So just quick on Process Solutions. You obviously mentioned you are investing for growth in the CDMO business as part of that. So could you give us a high-level overview of the split between of the revenues or current revenues between the CDMO services, tools and equipment and then the other service businesses and maybe a high-level overview of the growth rates on those businesses that you are seeing?

Matthias Heinzel: Yes. Thanks for your question.

So on a high level, in general, our service business is less than 10% to 15% of our total Process Solution business. And that it includes our existing CDMO business. As you know, we have already an existing CDO business when it comes to mass, when it comes to high-API and it includes also our testing service under BioAlliance brand. So if I take that kind of service segment together, it is less than 50% of our current Process Solutions business.

James Quigley: Thank you.

Operator: We will now take our next question from Gary Steventon from Exane BNP Paribas. Please ho ahead.

Gary Steventon: Great, thanks for taking my question. Just a quick one on the semis business, please. So you mentioned the strong growth was driven by both materials and DS&S offerings in the quarter, and you expect that capable phasing in DS&S to continue into the first half of next year.

So it seems to suggest that the strong Q3 performance could be extrapolated at least over the next kind of three quarters or so. So just be interested in your thoughts around the durability of that strong Q3 number and the market trends that you are seeing that supports it? Thank you.

Kai Beckmann: Yes, Gary, this is Kai speaking. Thanks for the question. So the split, if you look into our Delivery and Services business that has and of course, a phasing, as it was called, earlier.

That part will continue till the end of next year. And of course, we will then benefit from positive comps for the next three quarters ongoing the Delivery Systems business. And just to put that into context, this is an additional project business on top of a very strong base business. So this is not like bumpy as it was mentioned somewhere. This is on top of a very strong base business, an amazing project for the next couple of quarters till the end of next year with good comps for the next three quarters.

The Materials business is very strong as well. So it performed exactly in line with what we shared at our Capital Market Day and contributes a lot to that growth too. So it is a major portion of the delivery of a strong Q3 this year.

Operator: We will now take our next question from Falko Friedrichs from Deutsche Bank. Please go ahead.

Falko Friedrichs: Thank you very much. Good afternoon. My question is on Mavenclad, please. Could you share with us whether this increase in COVID cases in several regions is in any way affecting the high-efficacy market in Mavenclad’s performance and also on Mavenclad, are you able to briefly update us on any market share movements here with the drug? And then lastly, sorry, on Mavenclad, I have asked the question, I think, on the previous call, this vaccine-related data you presented to us a few quarters ago. Are you now seeing that playing in your favor? Thank you.

Marcus Kuhnert: Yes. Thank you, Falko, for the questions. So let me tackle them one by one. So first of all, you have seen that we had an interesting growth rate. If you normalize it for the one-offs, we are growing quarter-to-quarter sequentially 20%, which is, I think, good performance.

But as you rightfully point out, the dynamic market volume plays indeed an important role for us going forward. And we are quite confident on returning year two patients. When it comes, of course, to new patients, the dynamic market volume is really the leading indicator. And you might have heard, for example, also Roche, in their recent Q3 earnings call commenting on still the dynamic market. And honestly, we currently observe the same since the end of the summer.

And in some markets like notably the U.S., the COVID-19 delta wave is a topic. Now I don’t have a crystal ball, but I would say that due to that market phenomenon, we might expect quite some volatility over the next quarters for that reason. So the answer to your question is, yes, of course, lingering COVID-19 concerns do have a direct impact on the size of the overall market. In terms of market shares, and actually, it is a little bit related to your third question on is our vaccination story getting traction. We see indeed that despite a very competitive space in the U.S.

with the launch of amongst other - in the U.S., we hold our share with Mavenclad. And on the other side of the Atlantic in many European countries, we are actually gaining share. So also there from a competitivity standpoint, we are quite happy with the progress we make with Mavenclad. But the bottom line is high efficacy market, again, relatively depressed in the U.S., and that may create some volatility moving forward.

Falko Friedrichs: Okay.

Thank you.

Operator: We will now take our next question from Daniel Wendorff from ODDO. Please go ahead.

Daniel Wendorff: Yes. Good afternoon and thanks for taking my question.

And It is actually two small ones on Life Science. And the first one, when you mentioned the order growth, strong order growth in Q3, can you potentially indicate whether there is some positive effect from preordering given the tight supply in the market or maybe the buildup of inventory effect in there? And also a simple one, maybe as a follow-up question from last questions. Are the new upcoming treatment options for COVID-19 is that also an opportunity for your Life Science business so that you can supply production for these new corona pills as well?

Matthias Heinzel: Yes. Thanks, Daniel. Let me take question on your first one.

Indeed, our order intake continues to grow strongly and at the order book. At the same time, indeed the lead times are still quite long I think across the industry It is very difficult to predict whether there is kind of an effect of customers now kind of putting the orders earlier in, it is hard to quantify. I would say in general, we feel very good about this order intake increase, again, also related to the base business. And I think you also implied with the question, is there an inventory buildup in the chain. And based on all our conversations with customers, we don’t see that.

I mean we are really still very much constrained from a supplier standpoint. And with that, we still have those long lead times, which we need to kind of reduce. On your second question, we do not have, in reality a participation in those antiviral medications as part of the treatment for Life Science.

Daniel Wendorff: Thank you.

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

Please go head.

Simon Baker: Thanks for taking my question. Going back to Semiconductor Solutions, what is very good year-on-year growth. The sequential quarter growth was very strong. So I just wondering if you could give us an update on expanding capacity within the semis industry.

Is that starting to come through. And is your visibility and your outlook on capacity expansion as expected or are you seeing an acceleration of the introduction of new capacity within semis? Thanks so much.

Marcus Kuhnert: Definitely Simon, I will take that question. So there is the normal like annual capacity increase that is as usual. There is no big change to that.

So these are coming online. But those what you heard of course, in the course of this year is the substantial additional investments, we won’t see coming on stream anytime before 2023. I think none of these investments will be active than before that. So it means we see the normal increase of capacity as in the past. Does that answer your question, Simon?

Simon Baker: Yes.

Thank you.

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

Wimal Kapadia: Great, thank you very much for taking my question. Wimal Kapadia from Bernstein.

Just another one for Kai, I believe. Just on margins in Electronics, you had quite a strong margin for the quarter. Maybe you could just give us a bit more context on margins, specifically for semi and display. Is it more that semis is providing leverage or is it now stability and growth in display margin as OLED is division. Just I’m trying to understand the driver for strong margins and if this strength should be assumed moving forward, particularly given some of the earlier comments on inflation? Thank you.

Kai Beckmann: Thanks, Wimal, for that question because the margin situation is as follows. I think we have supporting factors such as our Bright Future efficiency program, delivering results, our synergies realization and the integration delivers with these are positive factors. Other positive factors such as the mix effect of faster growing semi materials business, definitely we have to take into account as well. On the negative side, we have the increased cost for already a number of quarters. That is a constant negative that we see and we have now lately kicking in increasing raw material costs that should provide you even a bit of an outlook, and we try to recover as much as possible of that.

However, that is an impact on our margins on the negative side. So the Q3 is a quarter that has been a quarter that is more impacted on the positive side, but these factors since the raw material developments are very recent developments.

Wimal Kapadia: Great, thank you.

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

Operator: We will now take our last question from the Florent Cespedes from Societe General.

Please go ahead.

Florent Cespedes: Good afternoon staff it is Florent Cespedes from Societe General. A quick one on Pharma. Could you please give us more color on the fertility business performance and notably the situation in the U.S. were going to left was a bit soft quarter? Thank you.

Marcus Kuhnert: Yes, Florent, thanks for the question. Actually, you have seen that the fertility business continues to grow with a very healthy rate of 7% quarter-over-quarter. There is one out layer, which is - in the U.S., which is roughly flat. And that has only to do with a relatively high comps in Q3 last year because basically, you may remember, of course, that Q2 last year was very depressed, and there was kind of a rebound effect in Q3 and that made the comps a little bit complicated for this quarter. But frankly, moving forward, I can really guide you towards a constant mid-single-digit growth for this business.

Florent Cespedes: Okay, thank you very much. Very clear, thanks.

Constantin Fest: Thank you very much. With this, I would like to hand over to Belén for closing words.

Belén Garijo: So very briefly, thank you, Constantin and most importantly, thanks everyone for your questions and for your continued interest in Merck.

No doubt, Q3 has been a very strong quarter, another case in point for the tremendous potential of our unique portfolio. And we are now sharply focused on driving to year-end to deliver on the commitments that we have put forward as part of our guidance upgrade. I look forward to continue the conversations with many of you during our Road Shows in coming weeks. And stay safe and stay well. Talk to you soon.

Bye-bye.

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