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Fundamental Information about the Group

Merck

We are a global science and technology company headquartered in Darmstadt, Germany. With a history of nearly 350 years, we are the oldest chemical and pharmaceutical company in the world. In line with our strategic direction, Merck comprises three business sectors: Healthcare, Life Science, and Performance Materials, which encompass the Group’s six businesses.

In Healthcare, we discover, develop and manufacture prescription medicines used to treat cancer, multiple sclerosis, and infertility, among other things, as well as over-the-counter pharmaceutical products for colds and pain. Our products help millions of people around the world.

In Life Science, we conduct research for researchers, providing scientists with laboratory materials, technologies and services. Our aim is to make research and biomanufacturing easier, faster and more successful.

Performance Materials develops specialty chemicals and materials for demanding applications – from liquid crystals and OLED materials for displays to effect pigments for coatings and cosmetics to high-tech materials for the manufacture of integrated circuits.

We hold the global rights to the Merck name and brand. The only exceptions are Canada and the United States. In these countries, we operate as EMD Serono in the biopharmaceutical business, as MilliporeSigma – following the completed acquisition of Sigma-Aldrich – in the life science business and as EMD Performance Materials in the high-tech materials business.

Apart from our three business sectors, our financial reporting presents the five regions Europe, North America, Asia-­Pacific (APAC), Latin America as well as Middle East and Africa (MEA). As of December 31, 2016, we had 50,414 employees worldwide, which compares with 49,613 on December 31, 2015.

Healthcare

Our Healthcare business sector comprises the four businesses Biopharma, Consumer Health, Biosimilars, and Allergopharma. Since 2015, Belén Garijo has been the CEO of the Healthcare business sector and member of the Executive Board. In 2016, Healthcare generated 45% of Group sales and 43% of EBITDA pre exceptionals (excluding Corporate and Other), making it the largest of our three business sectors. The regions Europe and North America generated 60% of Healthcare’s net sales in 2016. In recent years, we have steadily expanded our presence in growth markets. In 2016, Asia-Pacific and Latin America accounted for 33% of sales.

Biopharma

Our Biopharma business discovers, develops, manufactures and markets innovative pharmaceutical and biological prescription drugs to treat cancer, multiple sclerosis, infertility, growth disorders as well as certain cardiovascular and metabolic diseases. Bio­pharma is the largest of our Healthcare businesses. We operate in four franchises: Oncology, Neurology / Immunology, Fertility, General Medicine & Endocrinology. Our streamlined R&D pipeline positions us with a clear focus on becoming a leading science-driven innovator in oncology, immuno-oncology and immunology, including multiple sclerosis.

In 2016 we reinforced our commitment to growing our immunology pipeline to provide new options to better the lives of people with immunological diseases as we prepared for the potential launch of cladribine tablets. Our activities included major milestone accomplishments and an impactful presence at key medical meetings around the world.

New data on Rebif®, Biopharma’s top-selling drug and leading multiple sclerosis (MS) therapy, and investigational cladribine tablets were presented at both the American Academy of Neurology’s (AAN) Annual Meeting in April 2016 and the Congress of the European Academy of Neurology (EAN) in May 2016. In addition, results of more than 30 clinical studies were presented at the world’s largest international MS conference, the 32nd Congress of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS) in London, United Kingdom.

In June 2016, we reached a major regulatory milestone with the submission for registration of cladribine tablets to the European Medicines Agency (EMA). We believe that cladribine tablets, if approved, could lead to high and sustained efficacy through selective modulation of B and T cells resulting in lasting resolution of inflammation. The additional data we have gathered over the past four years provides better characterization of the safety and tolerability profile and this coupled with a unique oral short course will serve as an important therapeutic advance for patients with relapsing-­remitting multiple sclerosis (RRMS).

In July 2016, we announced the EMA’s acceptance for review of the Marketing Authorization Application (MAA) for the investigational product cladribine tablets for the treatment of RRMS.

We also presented data on atacicept, our investigational treatment for systemic lupus erythematosus (SLE) at the 2016 American College of Rheumatology / Association of Rheumatology Health ­Professionals (ACR / ARHP) Annual Meeting held in November. Although the primary endpoint was not met in the overall study population of the ADDRESS II Phase IIb, multicenter study on atacicept in patients with SLE, there was a trend favoring atacicept with statistical significance achieved in a pre-specified sensitivity analysis of the primary endpoint using treatment Day 1 as baseline (rather than screening visit). Additionally, analyses of a predefined subpopulation of patients with high disease activity demonstrated statistically significant treatment effects of atacicept when compared to placebo.

Erbitux®(cetuximab) remains the second best-selling drug in the portfolio of the Biopharma business and is the company’s flagship product in oncology. The product is a standard of care for patients with epidermal growth factor receptor (EGFR)-expressing, RAS wild-type metastatic colorectal cancer (mCRC) therapy, as well as both recurrent / metastatic and locally advanced squamous cell ­carcinoma of the head and neck (SCCHN).

We continue to invest in Erbitux®and are committed to making it available to those patients whom it will benefit most. In April 2016 we reached a major milestone regarding its expansion in growth markets with the positive results of the pivotal Chinese Phase III TAILOR study.

In addition, we continued to support our goal of improving care for patients with mCRC by further advancing in the area of liquid biopsy technologies through collaborations. In 2016, we became the first pharmaceutical company to collaborate with multiple diagnostic providers to support RAS biomarker testing, with new agreements announced with Biocartis and Amoy Diagnostics Co., Ltd. for different testing technologies to meet the needs of various laboratory segments. These agreements follow our first collaboration with Sysmex Inostics, which achieved a notable milestone in 2016, when the liquid biopsy technology we are co-developing received CE Mark approval in April.

Importantly, through another key collaboration, our strategic alliance with Pfizer Inc., USA, we continued to make progress in the development and envisaged commercialization of avelumab*, an investigational fully human anti-programmed death-ligand 1 (PD-L1) antibody.

The positive results from JAVELIN Merkel 200, the pivotal Phase II study in patients with metastatic Merkel cell carcinoma (MCC) treated with avelumab in second or subsequent lines of therapy, were presented at the American Society of Clinical Oncology (ASCO) 2016 annual meeting. These results supported the submission and acceptance of the Biologics License Application to the U.S. Food and Drug Administration (FDA), as well as the Marketing Authorization Application to the European Medicines Agency. ­Additionally, we initiated two pivotal Phase III trials for avelumab in 2016, including a combination trial with axitinib for the first-line treatment of renal cell carcinoma and as a first-line treatment for ovarian cancer.

These pivotal trials are part of the larger clinical development program for avelumab, known as JAVELIN, which involves at least 30 clinical programs and more than 4,000 patients evaluated across more than 15 different tumor types. As part of the strategic alliance, we are also advancing our co-promotion of Pfizer’s anaplastic ­lymphoma kinase (ALK) inhibitor Xalkori®(crizotinib), indicated for the treatment of patients with metastatic non-small cell lung cancer (NSCLC) whose tumors are ALK-positive. Xalkori®is being co-promoted in two waves, the first of which began in 2015 in the United States, Canada, Japan, and five EU countries (France, ­Germany, Italy, Spain, and the United Kingdom). The second wave began in 2016 including Argentina, China and Turkey.

As part of our efforts in immuno-oncology we have an exclusive strategic collaboration and license agreement with Intrexon Corporation to develop and commercialize Chimeric Antigen Receptor T-cell (CAR-T) cancer therapies.

An important growth driver for our Biopharma business is our fertility portfolio, offering products that help couples to conceive a child, ranging from drugs to technologies. Infertility has become a key topic globally due to the current trend towards delaying childbirth. We see a steadily increasing demand in growth markets, fueling current and future sales. In addition, we are facing a rapidly changing environment in the fertility market, with commoditization and price pressure in the drugs business, more educated patients and an increasing importance of Fertility Technologies. The strategic innovation of Merck’s fertility business model to develop from the world market leader in fertility treatments into an integrated ­fertility treatment partner focuses on turning these trends into opportunities for Merck and will drive further growth. The first step to achieve this goal was to extend our existing drug portfolio into our continuously expanding innovative technologies offering.

We are the only company to offer recombinant versions of the three natural hormones needed to treat infertility as well as a complete and clinically proven portfolio for every stage of the reproductive cycle. In early 2016, our portfolio of drugs was further complemented by the improved Gonal-f®prefilled pen, a new pen version including various advanced features designed to facilitate administration for patients.

Our Fertility Technologies business expanded and is now providing solutions for all key steps of in vitro fertilization (IVF). Our automated vitrification instrument Gavi™** can now freeze oocytes and embryos at key stages. For the incubator Geri™** an annotation software was introduced (Geri™ Connect & Assess 1.0), and with a humidified incubation feature the incubation environment now resembles the conditions in the uterus more closely. A new version of the incubator Geri™+ allows for use with the Early Embryo Viability Assessment (Eeva®) Test, for which a new software version was launched. With Geri™ medium we introduced a new single-­step medium supporting undisturbed embryo growth. Finally, our innovative witnessing and tracking system Gidget™ helps to reduce the potential for error and improves lab workflows. Key parts of our technologies portfolio were made available for clinical use in Europe in 2016, and now are also marketed in Canada and Japan.

In June, the Global Fertility Alliance welcomed two new members: Zeiss (Carl Zeiss AG, Oberkochen) and Hamilton Thorne Ltd., USA. The alliance paves the way forward into the future of fertility treatment and adds to our strong basis in the drug business and our highly innovative Fertility Technologies business.

Every day, 55 million patients around the world are using our trusted general medicine and endocrinology (GM&E) medications. Today Concor®, Euthyrox®, Glucophage®, and Saizen®are high-value brands and market leaders in many key markets around the world. As a result, in terms of sales GM&E is the largest business franchise of the Healthcare business sector, contributing significantly to the overall profitability of ­Bio­pharma and Merck. Although no longer patent-protected, the brand equity built over decades makes our flagship products cornerstones for the treatment of chronic cardiovascular, metabolic and endocrine diseases.

Concor®, containing bisoprolol, is the leading beta-blocker for chronic cardiovascular diseases such as hypertension, coronary artery disease and chronic heart failure. Euthyrox®, with the active ingredient levothyroxine, is the leading treatment for hypothyroidism, a disease with high prevalence but still low diagnosis in most emerging markets. Glucophage®, containing the active ingredient metformin, is the drug of choice for first-line treatment of type 2 diabetes. In October 2016, metformin received a positive CHMP opinion for treatment of type 2 diabetes patients with moderate renal impairment (CKD stage 3), which will be reflected in a label change in Europe. This will allow Glucophage®and other metformin products to be used safely by a larger group of patients with type 2 diabetes. The indication for Glucophage®is being extended to include prediabetes and has been granted approval in 12 markets around the world.

We also help to raise awareness and education in the areas we operate in, such as thyroid diseases. Highlights include our continuous engagement in International Thyroid Awareness Week and our partnership with the Royal Health Awareness Society (RHAS) of Jordan, signed in October.

Saizen®(somatropin) is our main endocrinology product and is indicated for the treatment of growth hormone deficiency (GHD) in children and adults. Saizen®is delivered with the easypod™ electromechanical injection device, the only growth hormone injection device of its kind. easypod™ is able to wirelessly transfer data such as injection times, dates and doses to the web-based software system easypod™ connect, making it easier for healthcare practitioners and patients to ensure adherence and reach their treatment goals.

As part of our continuous commitment to deliver high-quality medicines to our patients, we are continuously investing in our manufacturing network across the globe. In 2016, we completed the construction of a new facility in Nantong, China, expanded our plant in Rio de Janeiro, Brazil, and initiated the construction of a ew packaging center in Darmstadt, Germany, in order to meet the increasing worldwide demand for our General Medicine products Glucophage®, Concor®and Euthyrox®. In order to meet the increasing worldwide demand for our biotech portfolio of medicines, we completed the expansion of our plant in Tres Cantos, Spain. In Aubonne, Switzerland, we pushed forward with the construction of our new packaging center.

Consumer Health

In our Consumer Health business we focus on consumer-centric innovation under the umbrellas of several strategic brands such as Neurobion®, Bion®, Seven Seas®, Nasivin®, Femibion®, and Dolo-­Neurobion®, as well as Vivera®/ Floratil®, Sangobion®, ­Vigantoletten®, Apaisyl®, and Kytta®. Our latest innovations are the probiotic Vivera and the Femibion BabyPlanning line extension. We aim at emotionalizing these over-the-counter and food supplement brands so that they become irresistible love brands in the eyes of our consumers and customers alike. Most of these brands are fully aligned with the newly established purpose of the Consumer Health business: “We exist to prepare society for a new era of humans living 100 healthy years.”

Global megatrends favor the future growth of the Consumer Health business. People are becoming more health-conscious and take care of their own physical well-being. Preventive healthcare and as little invasive medication as possible are growing in importance – in both established and developing markets, the latter characterized by a growing middle class with specific needs. And people and societies are growing older than ever before. This is why we developed and started establishing a movement around our new purpose to actively drive change in the societies we are operating in, all under the independent label and motto “WE100® – young for old, old for young.”

We are currently among the top 15 players in the global OTC market and already generate more than 50% of our annual sales in developing growth markets. In particular, markets such as Chile, Brazil, the United Kingdom, South Africa, Thailand, Indonesia, India, Malaysia, and the Philippines are delivering significant growth rates. To further align the regional with the strategic brand strategies and to even better focus on efficient region-brand combinations, we have reorganized our regional structure.

Biosimilars

Our Biosimilars business is committed to providing access to high-­quality biologics to more patients all over the world. In addition, we are developing a biosimilars portfolio focused on oncology and inflammatory disorders through both in-house research and develop­ment expertise in biologics and partnerships with other biosimilar players. In 2016, we advanced our pipeline well into clinical development, with our adalimumab Phase III study recruiting the first patient and finishing recruitment in the same year. Biosimilars is an attractive market in which we are well-positioned, building on existing strengths and capabilities across the biosimilars value chain.

Merck has strategic alliances with Dr. Reddy’s in India to co-­develop multiple cancer drugs and with Bionovis in Brazil to supply the Brazilian market with biological products under the Productive Development Partnership (PDP) policy of the Brazilian Ministry of Health.

Merck is in advanced stages of negotiations to divest the ­Biosimilars business and the transaction is expected to close in 2017.

Allergopharma

Our allergy business Allergopharma is one of the leading companies in the field of allergy immunotherapy (AIT). The Allergopharma portfolio includes a diverse spectrum of approved allergen products that meet high quality standards. AIT (hypo-sensitization, desensitization, specific immunotherapy) is the only causal therapy for treating allergies to unavoidable allergens.

We manufacture products to diagnose and treat type 1 allergies such as hay fever or allergic asthma. Merck’s allergy business offers high-dose, hypoallergenic, standardized products for allergen immunotherapy of pollen and mite allergies. These allergoids have a special focus in Allergopharma’s product portfolio and constitute a cornerstone in its integrated health approach for patients suffering from these conditions. For effective treatment, reliable diagnosis is key. Allergopharma offers a broad range of diagnostics in the field of allergies with more than 100 single allergens, providing physicians with the specific tools needed to identify the substances causing an allergy. In addition, Allergo­pharma provides individual allergen extracts on a named patient basis, which are needed to treat less frequent allergies. Personalized medicine has been a reality for Allergopharma for many years now. Products of Allergopharma are available in more than 20 countries worldwide.

Life Science

With one of the broadest product and technology portfolios in the industry, the purpose of the Life Science business sector is to solve the toughest problems in life science by collaborating with the global scientific community. Udit Batra has been the CEO of our Life Science business sector since 2014 and became a member of the Merck Executive Board in April 2016. In 2016, the Life Science business sector contributed 38% to Group sales and 34% to EBITDA pre exceptionals (excluding Corporate and Other).

We are a leading player in the attractive € 100 billion life science industry, serving more than one million global customers with the aim of advancing science faster to accelerate access to health for people everywhere. We offer innovative solutions for scientists and engineers at every stage. Our products and services are used in the research, development and manufacture of biotechnological and pharmaceutical drug therapies, as well as in research and application laboratories. In addition, our products and services also reach adjacent markets such as the food and beverage industry.

In November 2015, we acquired the Sigma-Aldrich Corporation, a leading life science company. This marked the largest acquisition in the history of Merck – and one of the largest in the industry. As a combined business, we are able to serve life science customers around the world with a highly attractive set of established brands such as Millipore, Sigma-Aldrich, Milli-Q®, SAFC, Supelco and BioReliance. Moreover, we have a highly efficient supply chain through which we can deliver standard products in 24 to 48 hours worldwide. In the laboratory and academia business, we offer ­customers an extensive and customized range of products across laboratory chemicals, biologics, and reagents.

Life Science operates in 66 countries around the world with the headquarters in Darmstadt, Germany and major hubs in Boston (Massachusetts), St. Louis (Missouri), Milwaukee (Wisconsin) and Molsheim in France. In July, we announced plans to build a new campus in Burlington, Massachusetts that will serve as a major hub for our North American life science business with an investment of US$ 115 million. The 26,000 m2 facility will include an M Lab™ Collaboration Center customer collaboration laboratory and training center as well as office space – a state-of-the-art, shared, exploratory environment where the company’s scientists and engineers work together with customers.

The Life Science business sector generates recurring sales and stable, attractive cash flows in an industry that is characterized by stringent regulatory requirements. A highly diversified and loyal customer base additionally ensures a low risk profile. We benefit from a broad and relevant portfolio, a highly efficient supply chain including a superb eCommerce platform and global reach.

Our eCommerce platform sigmaaldrich.com allows customers in nearly every country to more easily find the exact products needed to advance their research. Currently, more than 70% of addressable legacy Merck Millipore products are available on ­sigmaaldrich.com. In 2016, we implemented a centralized initiative to manage all customer acquisition channels and scaled search advertising to include more than two million active keywords driving increased website traffic to the content customers are looking for, resulting in a streamlined customer experience.

The Life Science business sector is organized into three business areas which reflect customer segments. Research Solutions focuses on academia and pharmaceutical research institutions; Process Solutions markets products and services for the entire pharmaceutical production value chain, and Applied Solutions serves clinical and diagnostic testing laboratories, as well as the food and environmental industries.

To support these customer segments, our Strategic Marketing & Innovation (SMI) teams promote and deliver innovation tailored to our customers’ needs. The SMI organizations are responsible for defining customer segment strategy, maintaining and innovating the product portfolio and communicating the business’s strategic value propositions.

In addition, we have two commercial areas which are managed by region and customer segment to leverage regional and local expertise: one dedicated to the lab customers between Research and Applied and one dedicated to Process Solution customers. These areas are responsible for marketing, sales as well as customer and dealer relationships.

Research Solutions offers a broad and relevant portfolio of solutions that enable scientific discovery through complete partnership across the customer journey. This includes more than 200,000 products and services including molecular platforms, protein and pathway technologies, biochemicals, materials science, and cell culture workflow tools.

In Danvers, Massachusetts, we launched a transformation ­project at our current Mobius®manufacturing facility to improve capabilities within the facility. The project will include an additional 1,250 m2 of cleanroom space to help meet the increasing market demand for single-use products.

In 2016, we introduced MILLIPLEX®MAP Human High sensitivity cytokine panel for faster and more cost-effective human cytokine assays. The new assay is the first 384-well kit for use with the Luminex FLEXMAP3D®platform and allows researchers with limited sample volumes who require high throughput to get more results, faster.

Our Process Solutions business offers a diverse range of products to pharmaceutical and biotechnology companies that enable customers to develop large- and small-molecule drugs safely, effectively and cost-efficiently. With the 2015 combination of Sigma-­Aldrich and Merck Millipore, we now offer the broadest portfolio in the industry. The 15,000-plus products and services in Process Solutions include single-use manufacturing, filtration, chromatography and purification, virus reduction, pharma and biopharma raw materials, drug delivery compounds and engineering and validation services.

Our single-use solutions offer increased flexibility to biopharma customers since they eliminate time- and cost-intensive cleaning procedures. Moreover, these single-use solutions are compatible with various products, thus reducing investment costs for our customers. Launched in 2016, the new Mobius®products include a 1,000-liter single-use bioreactor with an industry-leading design, a 2,000-liter system for difficult-to-mix biopharma ingredients and a large-­volume transport system for sterile and non-sterile liquids. These products meet our customers’ increasingly complex demands for user-friendly systems that allow them to focus on their science. We also deliver full end-to-end biopharma solutions by offering clients a full process line cGMP (current good manufacturing practices), from clone to commercial production.

In 2016, we expanded our industry-leading Emprove®risk assessment program to include selection of products for filtration and single-use processing. Rapid and easy access to risk assessment information is critical in an ever-changing regulatory landscape. The Emprove®program provides documentation and regulatory information on materials used in the manufacture of drug products and includes Millipore Express®filters, Pureflex®and Pureflex®Plus bags, Viresolve®Pro filtration devices and Durapore®filters.

In November 2016, we announced an € 80 million investment in a Life Science Center in Nantong, China, demonstrating a commitment to the industry’s fast growth by providing a wide range of leading, innovative solutions for customers and partners in China. The facility will reinforce our leading position in inorganic salts for active pharmaceutical ingredients and excipients and cell culture media for the pharmaceutical, biopharma and healthcare markets in China as well as ready-to-use media for environmental and sterility testing.

The Applied Solutions business area focuses on diagnostic, testing and industrial customers and provides trusted products and comprehensive workflow solutions that streamline processes, lower costs and deliver consistent, reliable results. Our 62,000-plus products and services include analytical separation systems, reference materials, lab water instruments with consumables and services and microbiology and bio-monitoring testing materials.

Building on our commitment to improving workflows, we launched the Elix®high-throughput water purification system. Designed to operate at the heart of a central water purification solution, the Elix®system offers full connectivity, providing users real-time remote monitoring via computer, tablet or smartphone with access to all important water quality data. The product integrated seamlessly with existing systems and decreases energy and water consumption while maintaining water quality.

Our popular Guava®flow cytometers line was expanded with the addition of 532 nanometer lasers that increase the capabilities of the Guava®easyCyte instrument line to enable simultaneous detection of multiple fluorescent proteins. Since the discovery and isolation of the genes encoding proteins responsible for biological fluorescence, proteins have changed life science research. The new line enhances optical capability and flexibility and results in better optical configuration.

Performance Materials

Our entire specialty chemicals business is combined in our Performance Materials business sector. The portfolio includes high-tech chemicals for applications in fields such as consumer electronics, lighting, coatings, printing technology, paints, plastics, and cosmetics. Performance Materials comprises four business units: ­Display Materials, Integrated Circuit Materials, Pigments & Functional ­Materials, and Advanced Technologies.

Walter Galinat has been the CEO of the Performance Materials business sector since 2010. In April 2016 he was appointed to the Merck Executive Board. In 2016, the business sector’s share of Group sales amounted to 17% and its share of EBITDA pre exceptionals (excluding Corporate and Other) was 23%. The EBITDA margin pre exceptionals was 44.1% of sales.

In 2016, we defended our position as the global market and technology leader for established liquid crystal technologies even though the growth in demand for liquid crystal displays (LCDs) was lower than expected. Large – mainly Asian – display manufacturers are among the customers of our Liquid Crystals (LC) business. The Display Materials business unit comprises the broadest product offering. We offer liquid crystal mixtures, for technologies such as PS-VA (polymer-stabilized vertical alignment) technology (primarily for televisions) and IPS (in-plane switching) technology (primarily for smartphones and tablets), photoresist materials and reactive mesogens. New developments such as energy-efficient UB-FFS (ultra-brightness fringe field switching) technology established themselves further in the market for smartphones and tablets.

The development of new application possibilities for liquid crystals was again an important focus of our LC 2021 strategic initiative in 2016. This primarily includes the development of liquid crystal window technology. In order to protect against solar radiation, these windows allow continuously variable switching from light to dark in just seconds and have high color neutrality compared with competitive technologies. A privacy version of the windows permits switching from transparent to opaque. To achieve faster market penetration of the new technology, Merck is investing around € 15 million in a production facility for liquid crystal window modules at a site in Veldhoven, the Netherlands. The manufacture of these switchable modules, which our customers can process into smart windows and glass façades, is to start at the end of 2017.

In 2016, our annual “Displaying Futures” symposium focused on future mobility. We want to use the Automotive Platform that we have developed to show the potential that Merck materials have in view of future trends. These include liquid crystals for free-form displays, liquid crystals for mobile antenna applications or adaptive lighting in headlights, OLEDs (organic light-emitting diodes), LEDs (light-emitting diodes), semiconducting materials in chips or functional pigments. To further young companies and researchers, in 2016 we presented the Displaying Futures Award for the first time. The prize, which is worth US$ 50,000 and awarded for new ideas involving liquid crystal materials, went to three teams from the United States and the Netherlands.

Integrated Circuit Materials is our second-largest business unit and supplies products to manufacture integrated circuits and micro­electronic systems, for antireflection coatings, and for the miniaturization of transistor structures. By integrating the two acquisitions, namely the SAFC Hitech business of Sigma-Aldrich and Ormet Circuits, we have ideally complemented our portfolio to include deposition materials and conductive pastes for semiconductor packaging. Advanced semiconductor manufacturers benefit from our cutting-edge material solutions for next-generation litho­graphy, for example in directed self-assembly (DSA). We hold a leadership position in DSA technology thanks to our extensive expertise in polymer synthesis as well as many years of process and formulation experience. An important topic for the semiconductor industry is the development of increasingly powerful computer chips. This is being achieved by either making the structures on the chip even smaller (Moore’s law) or combining different chips in the component or three-dimensional structures (“beyond Moore”). Merck offers various innovative products for both approaches. In addition to smartphones and servers, the main applications include sensors, for example for the automotive industry, and the Internet of Things. As an important partner to leading global electronics manufacturers, the business unit achieves more than 60% of its sales in Asia, generating around three-quarters of sales with products that are the leaders in their respective markets. In 2016, we also strengthened our positioning in the growth market of China.

The Pigments & Functional Materials business unit develops and markets a comprehensive product portfolio of decorative effect pigments and functional materials. The effect pigments are primarily used in automotive and industrial coatings, plastics, printing applications, and cosmetics in order to give products a unique shine. Functional materials include laser marking, conductive additives, applications for counterfeit protection as well as high-quality ­cosmetic active ingredients, for example for use in skin care, as well as sun protection and insect repellents. In 2016, we offered our customers various new products in all areas: For example, we launched the new Thermaval™ series of pearlescent pigments for high-temperature applications. They allow ceramic glazes to retain their brilliant colors and sparkle effect, also when used in ceramic glazes at cost-efficient single-firing temperatures. In 2016, our ­portfolio expansion and distribution activities also focused on collaborations – for example, with Agrimer of France to use marine ­cosmetic actives and with PolyOne of the United States to refine and market an innovative 3D plastics technology. Triggered by the Zika virus epidemic, we gained further market share with our insect repellent IR3535®, even in the existing market. The substance provides effective protection against mosquito bites and is also safe for pregnant women, who are at particular risk from the Zika virus. Merck received the prestigious European Frost & Sullivan Award for Product Leadership 2016 for its pioneering role in ­pigments used in high-quality automotive coatings. This recognizes the ­success achieved with the innovative Meoxal®and ­Xirallic®NXT lines.

The Advanced Technologies business unit invests particularly in future-­oriented research and development in Performance Materials. A very good example of this are our materials for organic light-­emitting diodes (OLEDs). The OLED materials business is one of our fastest-growing businesses. We opened the new production facility for OLED materials in Darmstadt in September as planned. After a 14-month construction period, high-purity OLED materials are being produced in the approximately 3,600 m2 building. These are used not only in state-of-the-art displays, but also in modern lighting systems, such as in high-quality automotive tail lights. With a total investment of around € 30 million, this is one of the largest single investments Merck has made at the Darmstadt site in recent years. The plant makes it possible to significantly increase production capacity. We aim to be a leading supplier of OLED materials by 2018. In order to meet the increasing demand and supply ­customers with a broad range of high-performance OLED materials, we have entered into a cooperation agreement with the Japanese company Idemitsu Kosan.

Quantum materials are another interesting new technology to improve displays. They enable ultra-bright displays with a notable expansion of the color gamut. In order to meet the growing demand for quantum materials, we entered into a licensing agreement with the Nanoco Group of the United Kingdom. The license allows Merck to immediately start marketing Nanoco’s environmentally friendly cadmium-­free quantum materials and to establish its own production facilities in the long term. In addition, we are also conducting research in quantum technology via the Israeli start-up Qlight Nanotech, which we acquired in 2015.

* Avelumab is not yet approved for any indication in any market. The EMA has validated the Marketing Authorization Application for avelumab for the treatment of metastatic MCC, marking the first acceptance of an EU market authorization application to review the safety and efficacy results for this investigational product. The U.S. FDA has also accepted the Biologics License Application for avelumab for the treatment of metastatic MCC, marking the first acceptance of an application by the U.S. FDA to review this investigational product.
** Gavi™ and Geri™ are not available in the United States.