Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on third quarter 2026. As a reminder, all participants will be in a listen-only mode. I am now handing over to Florian Schraeder, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir.
Thank you very much, Maddalena. Good afternoon, good morning, everyone, and welcome to our Q3 2026 results call. Thank you for joining us today. My name is Florian Schraeder, and I am the Head of Investor Relations at Merck. In today's call, Kai Beckmann, Group CEO, will open with an update on the steps taken over the course of the summer that are linked to our new strategic direction.
He will then highlight our third quarter business performance and key developments in his executive summary. Helene von Roeder, Group CFO, will present the financial overview in more detail. Before we turn to your questions, Kai will share our updated outlook and guidance. Jean-Charles Wirth, CEO of Life Science, Danny Bar-Zohar, CEO of Healthcare, and Benjamin Hein, CEO of Electronics, will join us for the Q&A. I am delighted to hand over to Kai to get us started.
Yeah, thank you, Florian, and good afternoon, good morning, and thank you all for being with us today, and let us get started now. First, let me provide an update on our strategic direction, which we announced in May and which we detail today. As you know, it rests on four streams: focus on high-growth value drivers, shifting selected product portfolios towards integrated workflows, connecting and leveraging our platform capabilities across our business, and scale and source innovation via M&A and in-licensing.
We further defined our approach on high-growth value drivers, which we define as sizable, fast-growing end market segments where we want to continue strengthening our position. We identified four segments: biomanufacturing, discovery, and development across the life sciences value chain, semiconductor manufacturing that supports AI and advanced nodes, as well as targeted specialty and rare diseases.
Speaking of rare diseases, I trust that you have seen the positive news on Tuesday. The FDA approved PIMJETMI, which is our brand name for pimicotinib, as a systemic treatment for patients with symptomatic tenosynovial giant cell tumors. This is an important milestone on our way to further expand the reach of our rare diseases franchise.
Our growth depends on more than investments in M&A. It also depends on how well we execute. When we look at our strategic direction alongside our results over recent quarters, we can see how the pieces fall into place. With that, let us move on to the next slide to discuss the highlights of the quarter. I think it is fair to say that the third quarter delivered solid results and that we have continued to advance our strategic priorities across the business in the last few months.
As you know, earlier this year, we set out where we see the strongest opportunities to grow. This quarter, we took further steps in that direction and worked to better address the needs of our patients and customers.
Before we get to the numbers, I would like to highlight a few developments that show how we are putting our strategic direction into action. Together, they reflect three themes: strengthening our capabilities, sharpening our portfolio, investing in our global footprint.
In October, we announced the planned acquisition of Silence Therapeutics, which is a strategically important step toward strengthening our mid-stage pipeline, and if completed, it would add divesiran, a phase III-ready siRNA candidate for the treatment of polycythemia vera. The acquisition is in line with our focus on targeted specialty and rare diseases. We also see it as an opportunity for future expansion into hematology.
The transaction is expected to close in the first quarter of 2027, subject to customary closing conditions. At the same time, our strategic agenda is also about making choices and sharpening our portfolio. Therefore, we announced the planned divestment of our CDMO business to Lonza last week.
This is another important step in advancing our mid-to-long-term strategic agenda. It allows us to reduce capital intensity and further focus our portfolio on businesses with strong value creation. The transaction is expected to close in mid-2027, subject to regulatory approvals and closing conditions.
Finally, I am pleased to share that we are only a few steps away from closing the Bio-Techne acquisition. This important milestone could bring world-class R&D and innovation that will support growth in Life Science Discovery and Development.
In our investor call on June 25th, we shared our expectation that the inclusion of Bio-Techne should be immediately accretive to sales growth and margins, and we expect a contribution still this year, while the actual closing date of the transaction is not set yet. I will share details in our guidance update in a few minutes. In parallel to portfolio choices, we are investing in our global footprint with site openings in Daejeon, Sheboygan, and Darmstadt.
In Daejeon, South Korea, our new Asia-Pacific bioprocessing center is now officially open. With an investment of more than EUR 300 million, the center strengthens our in-region, for-region commitment in Asia-Pacific and globally. It also supports South Korea's growing role as a regional hub for biopharmaceutical manufacturing.
In Sheboygan, Wisconsin, we opened a new 38,000 sq ft research and development facility focused on materials for next-generation chip manufacturing, and it is part of our $200 million multi-year investment in U.S. Semiconductor Solutions capabilities. In Darmstadt, we unveiled a new EUR 25 million BioReliance testing facility back in July.
It expands our capacity in the European Union for commercial drug substance and drug product release testing. This brings these services closer to biopharmaceutical customers across the region. With that, let me now turn to a summary of financial performance in the third quarter.
Following a strong first half of 2026, we sustained our growth momentum in the third quarter. Organic sales growth accelerated to 5.1%, with significant contributions from Life Science and Electronics. Healthcare sales also improved sequentially despite ongoing headwinds. Life Science delivered across all regions.
Process Solutions again performed strongly, with organic sales growth of 10.5%. Advanced Solutions continued to achieve solid growth, while Discovery Solutions recorded modest growth, supported by stabilizing markets. In Healthcare, all franchises except Specialty Care contributed to broadly stable sales.
The Rare Diseases portfolio made its first contribution to organic growth, with growth in the mid-double-digit percentage range. Cardiometabolic, as well as Fertility and Endocrinology, each achieved mid-single-digit growth. Headwinds in Specialty Care became more pronounced as the loss of exclusivity for Mavenclad in the U.S. accelerated sales erosion in Q3..
In Electronics, organic growth accelerated visibly, reaching 13% in the third quarter. Semiconductor Solutions grew strongly, with organic sales up 19%, supported by continued momentum in advanced nodes. Optronics was broadly stable, while headwinds in consumer electronics and markets are expected to intensify further.
Overall, we achieved our ambition of profitable organic growth for the Group while continuing to invest in innovation. The year-over-year comparison for EBITDA pre-growth was affected by material one-off effects in Q3 2025. Helene will share further details on this later.
Another highlight was the strong cash generation, which further improved our leverage ratio ahead of the expected closing of the Bio-Techne acquisition. On the strength of these results, we raised our full-year guidance once again. I will provide the details later in this call.
Let's take a closer look at the growth composition for sales and EBITDA pre now on page seven. This quarter, the combined effect of organic growth, foreign exchange rates, and portfolio changes were more favorable compared to H1, contributing to an acceleration in growth momentum.
Year-over-year reported net sales growth of 5.8% in Q3 was 240 basis points higher than the reported growth rate of 3.4% in Q2. Organic sales growth was 100 basis points higher at a rate of 5.1% after 4.1% in Q2. Foreign exchange effects shifted from negative in the first half to positive in Q3, contributing 1.5 percentage points.
Portfolio effects had a slightly negative impact of 0.8 percentage points. Organic EBITDA pre-growth of 0.4% held up well despite having a net double-digit million lower one-off support versus Q3 2025. I now hand over to Helene, who will share further details.
Thank you very much, Kai, and a warm welcome from my side. Let's take a closer look at the details of the financial performance in the third quarter. Looking first at reported growth and the key metrics on slide nine. As Kai did already point out, the mix shifted considerably from Q2, all in all, very much in our favor.
As you are all aware, reported leveraged growth and strong cash generation, regardless of whether growth is organic or external, will gain in importance in the coming year. In that context, let me comment on Bio-Techne and the anticipated sale of the CDMO business.
We expect Bio-Techne to add a portfolio effect of close to 5% to Group reported sales growth and about 10% to Life Science reported sales growth in 2027. We will quantify the CDMO-related effect more precisely after the closing, which we expect next year.
Both Bio-Techne and the CDMO sale are expected to be immediately accretive to group and Life Science EBITDA pre-margins after closing. Returning to Q3, EBITDA pre increased by 0.8%. The Q3 2025 comparison benefited from a 60 million gain of the sale of a priority review voucher and a further EUR 59 million tailwind from legislative changes in South America. EPS pre was unchanged year-over-year in Q3.
A lower negative financial result was offset by higher depreciation and amortization. Reported EPS were affected by an impairment related to the sale of the CDMO business, which also drove our calculated tax rate to 23.9% in Q3, resulting in a rate of 23.2% year to date. Here is one housekeeping item.
As of 2027, we expect our underlying tax rate to be in the range of 22%-24%, which is one percentage point higher than the range of the past years. That mainly reflects the shift in the geographic mix of our profits. Softer demand for certain healthcare products manufactured in Switzerland is reducing Switzerland's relative contribution to group profit over time, and that is increasing the weight of profits in higher tax jurisdictions.
With that, let's turn to the financial performance by business sector. I am starting with Life Science on slide 10. Sales grew organically by 6.1% year-over-year. Excluding the impact of tariff refunds to customers, growth would have been 7.3%. It was again Process Solutions who led the growth, increasing by 10.5%, including tariff-related headwinds. Underlying growth was 12.6%, driven by customer projects and downstream.
Unlike in the first half of 2026, growth was not boosted by extraordinary effects. While the underlying demand and customer capacity expansion remained strong, you may recall that we talked in August about order book trends, which pointed to a softer fourth quarter. Despite challenging environment, Discovery Solutions delivered organic sales growth of 1.7% or 22.4% excluding customer refunds.
Overall, academia was stabilizing, but still with very different regional patterns. We also saw greater strength in the business with customers in the industry and testing segment. Advanced Solutions continued to perform solidly with organic growth of 4.3%.
The main growth drivers here were CDMO, biomonitoring, and lab water. Here, all regions out of China grew, led by the Americas and the rest of Asia Pacific. Sales in China were only slightly below the prior year.
To address a question you may have already now, the CDMO assets, which we agreed to sell to Lonza, accounted for less than 10% of Q3 sales in Advanced Solutions. The related EBITDA pre-margin was below the Life Science sector's margin. This provides context for my earlier comment about the expected margin accretion following the closing. Also, let me close the discussion on tariffs here.
With the completion of Q3, we have recognized all tariff-related effects. The total top line impact year-to-date amounted to EUR 35 million, of which EUR 26 million was recognized in Q3.
Life Science EBITDA pre grew by 8.7%, primarily driven by volume growth and Process Solutions, and supported by tariff refunds received. These contributions were partly offset by higher R&D investments and capacity expansion. Let's look at Healthcare, and we are with that on slide 11.
Growth in rare disease, cardiometabolic, as well as fertility and endocrinology were offset by a decline in specialty care. Our rare disease portfolio continued advancing. Q3 was the first quarter in which it contributed to organic growth. OGSIVEO and Gomekli delivered strong year-over-year growth of 25% and 80%, respectively. In Q4, we may see the usual year-end stocking effects.
That said, we will continue working to accelerate the underlying uptake in the U.S. and other regions going forward. Fertility and endocrinology returned to organic growth. The prior year U.S. price effect for Gonal-f has largely annualized, and both Pergoveris and Saizen grew in the double-digit percentages.
Mavenclad again showed double-digit growth in Europe, while erosion in the U.S. accelerated in Q3. Our updated 2026 guidance continues to reflect only what has been booked in terms of U.S. sales to date.
Growth of Erbitux once again mitigated the decline in specialty care, supported by the BREAKWATER regimen. EBITDA pre benefited from strong cost discipline and sequentially stable R&D expense, offsetting margin pressure related to lower Mavenclad sales. Given the expected continuing erosion of Mavenclad sales in the U.S., as well as launch preparations and the expansion of phase III projects, we expect the EBITDA pre margin to decline from here.
However, achieving a margin north of 30% remains paramount to us also in the future. This also holds true in light of potential effects related to a phase III start for divesiran, following the expected closing of the acquisition of Silence Therapeutics in Q1 of next year. Let's move on to Electronics. The Electronics business sector accelerated its growth yet again in Q3.
Organic growth of 13% was broad-based across all key regions, with strong momentum in the ramp-up of advanced nodes across logic and memory, supported by AI demand. All part of the Semiconductor Solutions portfolio contributed to a very strong organic growth of 19%.
Alongside strong volume growth and favorable mix, sales benefited from price adjustments associated to higher raw material prices. We view this additional contribution as temporary and expect it to fade as market conditions normalize over the course of 2027. Optronics remained around stable. However, let me reiterate what I said in August.
The business continues to face headwinds from softer demand for consumer electronics influenced by high memory prices. We continue to assume that this could result in a more pronounced year-over-year decline of net sales in Q4. Bottom line, we saw a strong underlying performance of the Electronics business in Q3, including significant operating leverage.
It was a clean quarter without material one-off effects. EBITDA pre increased organically by more than 17% to EUR 279 million. The Q3 margin of 29.5% demonstrates further progress in our operating performance. Looking ahead, we continue to see scope for further gradual improvement in our underlying EBITDA margin, supported by volumes, mix, and cost discipline.
A few words on key development in our balance sheet, which reflects the effect of the portfolio measures we plan to execute in the coming months. Total assets stood at EUR 53.7 billion at the end of September, up from EUR 51.5 billion in December last year, and EUR 52.7 billion in June.
Cash and cash equivalents increased in anticipation of the upcoming payment for the Bio-Techne acquisition. The main drivers here were strong underlying free cash flow and the liquidation of short-term investments.
The year-to-date increases in receivables and inventories reflect the expansion of the business. However, receivables remained stable sequentially despite further growth, thanks to improved cash collection processes. Inventories declined quarter-on-quarter despite continued strong growth in Life Science and Electronics. The increase in other assets was related to the recognition of CDMO assets held for sale, Bio-Techne hedging measures, and equity investments.
On the equity and liabilities side, our equity ratio increased to 59%, up from 57% in Q2, driven by earnings growth and favorable foreign exchange effects. Financial debt remained stable, while other liabilities declined following a change in the discount rate used to calculate pension provisions.
Now, to round off my remarks, I would like to highlight a few cash flow developments which are particularly important to me, as leverage growth also needs to translate in higher cash generation as the second level of value creation.
Solid growth and sequentially stable working capital drove high single-digit growth in operating cash flow, reducing net debt and the leverage ratio, as Kai already noted earlier. Operating cash flow rose by almost 10% to EUR 1.66 billion in Q3, compared with EUR 1.5 billion in the same quarter of last year.
The starting point in the table on slide 14, reported profit after tax declined primarily due to the impairment of the CDMO assets held for sale, which at the same time triggered the significant increase of D&A. Within net working capital, lower trade payables affected cash flow negatively, while receivables management and inventory levels developed favorably.
Underlying cash generation has strengthened noticeably in recent months. Maintaining that progress will remain a priority as we work to deleverage rapidly following the planned acquisition of Bio-Techne.
You may recall that we projected in June that the leverage ratio post-closing should be below 3x net debt to EBITDA pre. It now appears possible that we will end the year clearly below that level.
Cash used in investing activity decreased, reflecting disciplined spending and the completion of several larger investment projects. The main driver, however, was the liquidation of financial investments ahead of the expected closing of Bio-Techne acquisition. Financing cash flow reflected the repayment of a hybrid bond. With that, I will hand back to Kai.
Oh, thank you, Helene. It is a pleasure to share for the third time an upgraded full year 2026 guidance. Let me guide you through the details on slide 16 and 17. We now expect organic growth in group net sales of 3%-4%, compared with 1%-3% previously. We saw easing headwinds from foreign exchange rate in Q2, which have become a tailwind in Q3.
The foreign exchange impact now is expected to amount to -1%-0% after -2%-0% previously. Hence, group net sales are expected to reach around EUR 21.5 billion-EUR 21.9 billion, versus our previous net sales guidance of EUR 21 billion-EUR 21.8 billion.
Apart from improvements in the underlying performance and more favorable FX effects, we now also account for contribution from Bio-Techne as an additional portfolio effect for the month of December.
For group EBITDA pre, we now expect EUR 6.2 billion-EUR 6.4 billion, compared with EUR 5.9 billion-EUR 6.3 billion previously. This reflects an organic growth of 3%-5%, compared with 0% to +3% before. EPS pre is expected to be in the range of EUR 8.30-EUR 8.70, a 3% increase compared to the previous range of EUR 7.90 to EUR 8.60.
Let's look into the business sector guidance. We raised once again the lower end of our sales growth guidance for Life Science. The new organic sales growth range is now expected between 6% and 7% versus 5% to 7% in August. The midpoint of the guidance in absolute numbers moves up to EUR 9.5 billion.
In addition, this forecast reflects the acquisition of Bio-Techne in the month of December as a portfolio effect on sales of the Life Science business sector. This is an assumption. The actual closing date of the transaction may differ.
Based on this assumption, the portfolio effect would result in a high double-digit million contribution for Life Science in 2026. EBITDA pre-organic growth in Life Science is now expected in a range of 6%-8% compared with 5%-8% previously.
The midpoint of the range in absolute numbers increases from EUR 2.7 billion -EUR 2.8 billion. For Healthcare, we now expect organic net sales development of -3% to -2% compared with -4% to -2% in August. This is driven by our assumptions on Mavenclad U.S., now assuming zero sales as of November, sorry, as slightly better performance in other parts of the business.
EBITDA pre in Healthcare is expected to be around EUR 2.9 billion-EUR 3 billion compared with EUR 2.8 billion-EUR 3 billion previously. For Electronics, we raise our organic net sales growth guidance once again, now to 10%-11% from 6% to 9% previously. EBITDA pre for Electronics is now expected to be around EUR 1.1 billion after EUR 1 billion in August.
The respective range for organic EBITDA pre-growth moves from 25%- 29%- 33%- 35%, reflecting the operating leverage in Semiconductor Solutions, but also a comparable basis that was affected by one-off effects.
To sum it up, we made significant progress over the course of 2026 strategically and operationally, as underpinned by another guidance increase today. With that, I hand it back to Florian.
Thank you, Kai. Before we open the lines for the Q&A, one final announcement. We would like to invite you to our ESG investor update call on December the 8th at 10:00 A.M. CET. This 90-minute virtual session will give sustainability-focused investors and analysts the opportunity to hear from our top management about our ESG priorities and how they support long-term value creation. With that, I will ask Magdalena to open the Q&A session.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial star 11 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question for today comes from Richard Vosser from JP Morgan. Please go ahead.
Hi, thanks for taking my questions. Two, please. First question just on Process Solutions. Maybe you could give us a little bit more color what you are seeing talking to customers, that has led to also what you are seeing in the order book, what has led to how you are seeing Q4 develop, and maybe you could give us a little bit of color how you are thinking about next year as well on Process Solutions.
Second question, just on Pergoveris in the U.S. We have seen some potential news today about the FDA maybe abandoning the CNPV process, having that wound down. Maybe you could give us an update on how that review is going, how we should think about this as a potential opportunity for sales growth in 2027 for the Healthcare part of the business. Thanks very much.
Thank you, Richard. Jean-Charles speaking. Hope you are doing fine. Let me answer the first question concerning Process Solution, but maybe before I go on process, I would like to zoom out and give you a kind of sense about our Q3 performance for total Life Science. Q3 was a solid quarter for Life Science with, as mentioned, an organic growth of 6.1%. Excluding tariff refund to customer, the underlying growth would have been 7.3%.
Something important to mention, we have a clean quarter with no special effects, except only this item around tariff refund to customer. When you peel the onion, very solid performance in Advanced Solutions, 4.3% organically. I will say Discovery Solutions, 1.7% organic growth, we are pleased. Now let me zoom into your question on Process Solution.
Process Solution delivered a 10.5% organic growth year-over-year in Q3, and adjusted again from the effect related to the tariff refund, the growth would have been 12.6%. We are seeing positive momentum across Process Solution, namely in downstream, in upstream, and single use. All franchises posted a positive organic growth this quarter. When you look year-to-date September, I will say Process Solution is adding a very strong sales growth.
Talking about year-to-date performance, I would like to mention as well that the book-to-bill ratio of Process Solution year-to-date September is above one. Now, talking about Q4 for Process Solution, we expect to have an organic growth around mid-single digits due to a phasing effect. I want to repeat, due to a phasing effect. To be clear, it is not about the underlying market. What does it mean for the full year?
Number one, we are aiming to have a book-to-bill ratio for Process Solutions above one, and I am very confident that PS growth will be in the upper end of our 8%-12% range for 2026 full year. In summary, I would say everything is in order in Process Solutions. To your question on 2027, you should understand that we will not provide guidance.
The one thing that we should all agree is on our comps. Our comps in H1 2027 will be much higher, and we should see an easier comp in H2. So, if you zoom out and take a look at midterm guidance starting in 2026, we confidently confirm our midterm outlook of 8%-12% organic growth in the range for Process Solution in 2027.
Hi, Richard. It is Danny. Regarding Pergoveris, in the same spirit, let us also zoom out a little bit regarding the geographical expansion of Pergoveris. in March, we launched Pergoveris in China in the private market, and we are working towards inclusion in NRDL. As of now, we chose quite encouraging signs in China.
But to your question for the U.S., in short, nothing has materially changed since what I said and also the tone that I used in the last call. We are still under review. We are collaborating with the FDA, and we are expecting a decision in the coming months. You made a comment regarding the CNPV. Of course, we hold this CNPV. It is not expired. We filed. The file was accepted.
But on paper, formally, it can take more months for the FDA to complete the review, and we will, of course, update you if we know something material. In the meantime, we are preparing for a potential launch, as we said already in previous calls.
Thank you very much.
Thank you. We are now going to take the next question. This one is from Peter Verdult from BNP Paribas. Please go ahead.
Yeah, thanks. Peter Verdult, BNP Paribas. Two questions. Firstly, for Ben, could you help ballpark quantify the volume price mix behind the 19% Semiconductor Solutions growth you enjoyed in Q3? Because we are pharma analysts, we are not electronic specialists, just to remind us what level of visibility you have across semi materials going into next year.
What I am trying to get to is whether 2027 could be a year where you trend above your midterm target of 7%-11% for Semiconductor Solutions. Then more quickly and broadly for Kai or Helene, the market is penciling in around 4%-5% organic growth for next year.
Totally understand this is not a guidance call for next year, but I do want to kick the tires with you and gauge your confidence of this being a plausible scenario, given you have some one-offs that you have enjoyed this year that will not recur next year, but you also seem to have some very strong underlying momentum across Life Science and Electronics. Thank you.
Thank you very much, Peter. It is Ben speaking. Let me address your first two questions on Electronics, one regarding price volume and the second one regarding the outlook in 2027. When you zoom out, let me give you some context. As Kai and Helene said, we raised our organic sales growth guidance for Electronics from 6%-9% to 10%-11%.
What is driving that? It is mainly advanced node ramps across Semiconductor Solutions, which have developed ahead of our expectation, but we are also, to your question, seeing a temporary pricing contribution. Majority, though, is volume-driven.
We are actively managing our supply chain to support our customers to ensure fair compensation for the contributions that we are making. Again, against the strong backdrop of demand, we have certain raw materials that are tight in supply, and their market prices have risen significantly.
For the full year 2026, we expect this pricing effect to contribute roughly 2 percentage points to organic sales growth in Semiconductor Solutions. If we want to go deeper, we expect roughly one-third in Q3 and two-thirds of that to happen in Q4.
As we look into the future from a pricing viewpoint, in our base case, we expect the raw materials market conditions to normalize over the course of 2027, with again the associated pricing support fading accordingly on this particular effect.
Regarding the outlook in 2027 on the industry overall, what we are seeing and hearing from our customers, especially at the most advanced nodes and at the leading edge, capacity remains constrained and capacity remains very tight.
The main driver of our growth continues to be advanced node ramps in logic, in memory, as well as in advanced packaging, which, as I said, have progressed ahead of our expectations. Our customers will be in Taiwan, Japan next week. They are working tirelessly to bring additional capacity online and remove supply bottlenecks.
That is the focus currently, and that is the outlook into 2027. I have to say, though, as Kai mentioned, consumer electronics application segment remains very much suppressed by the high memory pricing and the focus of the industry on the AI segment in particular.
So, Peter, thanks for your question. You are absolutely right that we do not guide today. Still a great question. Look, you heard me talking about solid underlying trends back in August, and that regard, really nothing has changed. Market fundamentals are absolutely intact. Looking into next year requires us first to look into 2026, and we have upgraded our organic sales growth guidance for the third consecutive time this year.
This clearly underlines the strength of our portfolio. Of course, as a base effect, this influences next year's growth outlook maybe a little bit. Our teams have done a fantastic job in managing the Mavenclad decline and ensuring supply availability in H1 when demand in Process Solutions experienced an extra boost. Let me repeat.
We face tough comps in PS in H1, and with Mavenclad U.S. sales down almost 50% sequentially in Q3, it is only fair to assume a rather steep Mavenclad decline in 2027. Back to the upgraded group guidance for 2026, you will see there is a bit of slowdown organically implied for Q4, and we expect this to continue into early next year. Let me zoom out. We feel absolutely confident with our midterm guidance.
As I have lined out, there are a few effects that you should take into account when thinking about organic growth in 2027. At the same time, we expect a significant boost to reported numbers of LS and the group from the recent sharpening of the portfolio and Bio-Techne in particular. Obviously, you will hear more from us in March 2027. We will share our quantitative guidance, and let us look into Helene. Can you add anything?
Yeah, I can actually. I'm not going to repeat everything that you've just said, but there may be just one aspect I would like to add in terms of margins. Healthcare will see pressure from Mavenclad, and the R&D ratio may slightly increase due to, for example, Silence Therapeutics. Nevertheless, as said several times, we're absolutely committed to manage the healthcare EBITDA pre-margin north of 30%.
If you think about Life Science and Electronics, we strongly believe to be able to drive margin expansion. Both could see 30% already next year. Having said this, let me comment a bit further on Bio-Techne in this context. Bio-Techne alone will add close to 5% to group sales and about 10% to Life Science.
While we remain absolutely committed to EPS pre-accretion in year three after closing, keep in mind that both Bio-Techne and the announced divestiture of the U.S. CDMO business will be immediately accretive to group and Life Science EBITDA pre-margin post-closing.
Thank you.
Thank you. We are now going to take the next question. This one is from Matthew Weston from UBS. Please go ahead.
Thank you for taking the questions. Two, please. I think they are probably both for Helene. Helene, Vera Therapeutics, your partner, you have made clear in the past that royalties are shared with Bristol and ZYMO. We were expecting an approval milestone in 3Q, but it seems to have been absorbed in the pharma or healthcare other income line.
Could you confirm that a proportion of milestones are also passed on to Bristol and ZYMO? If so, can you give us a reasonable proportion for future modeling that Merck will keep? The second one, just on Bio-Techne.
You have talked about pushes and pulls, and you have been able to bring the closing of the transaction forward. I recall that you have an option to also bring forward the full consolidation of Wilson Wolf, and that was an element that was going to add extra accretion to the Bio-Techne deal. Is there potential that that can also come early and boost accretion in 2027?
My colleagues are trumping at the bit to answer your question, hence, I will hand over first to Danny.
Thanks. Richard, when it comes to Vera, when it comes to milestones and royalties, it is fair to assume that there is a meaningful obligation from Merck to BMS. Vera disclosed a, and I quote them, "low to mid-teens percent royalty rate." However, in virtually every scenario, the net royalty rate upside for us would remain in the single-digit percent range. Sorry, it was Matthew.
On the milestones, Danny, is it true there as well?
I am looking into that. We will get back to you after the answer to the second question.
Okay, I can-
Perfect
take the Wilson Wolf one. It is Q1 2028, and there is no option to move this closing.
Okay. Thank you.
Matthew, regarding the milestones, it is similar proportions as I said before.
Okay, perfect. Thank you very much, both.
Thank you. We are now going to take the next question. This one is from James Quigley from Goldman Sachs. Please go ahead.
Great. Thank you for taking our questions. I have two, please. One on Life Science, one on Healthcare. In the Life Science, one of your competitors saw an increase in the lab division growth driven or partly driven by AI. They highlight the bioanalytics instrument portfolio there as well.
You noted on the slides that the high-tech instruments have been recovering, mostly driven by pharma and biotechs. What are you seeing with respect to potential impact on Discovery Solutions and Advanced Solutions from all that could be attributed to any increase in activity due to AI?
The second question for Danny on Gomekli and OGSIVEO. Sequential growth for both has slowed in the quarter. Is there any seasonality impact here, or is there something to flag with respect that could help explain the quarter-on-quarter slowdown?
How are patient identification efforts progressing for both drugs, and what are you seeing in terms of patient starts, and at what point can we start to see an inflection in the sales there? Thank you.
Hi, James. Jean-Charles speaking. Let me answer the first question related to the labs business and AI. At customer level, I will say we see no significant spending shifts yet. It is true that we saw in the market numerous deal announcements dealing with biobugs, and AI could increase the demands for experimental validation mid to long term.
That said, AI and innovation are central to our Merck Life Science strategy. To give you some concrete example, we are working linked to our strategy execution on AI solution. Let me take the opportunity to give you a concrete example.
The first one is on Advanced Solutions. We launched ChemisTwin, which is an AI-powered digital reference materials platform for analytical control, and it drive more sustainable testing for customer. The other example is around drug Discovery Solutions.
Both are touching the lab business, and I am talking about SYNTHIA Agentic AI, which is again an AI-powered digital chemistry solution which helps our customer to successfully design a target molecule and in fact, it speeds up their overall research process.
In a nutshell, to answer your question, we do not see yet in the market significant spending shifts. However, from a strategy point of view, we are diligently working on it, and I just wanted to share with you two concrete examples.
Hi, James. It is Danny. Thank you for your questions regarding OGSIVEO and Gomekli. Let us start with OGSIVEO, to give you a little bit more color on that. The Q3 sales were up 24% year-over-year. It is growing 4% up quarter-over-quarter, and this is driven by higher U.S. demand, additional launches in other countries, and increased named patient sales demand.
Now, I am encouraged by improving underlying demand metrics, including growth in new patient starts, high refill rates, and also low and slightly going down even discontinuations. This gives us confidence in terms of growth in the quarters ahead. The question is, can we do more? And the answer to that is yes. We clearly believe that we can, especially when it comes to the U.S., or actually for both OGSIVEO and Gomekli.
Beyond these metrics, physician adoption, when you look at it, remains very strong. OGSIVEO continues to lead all treatment options in satisfaction. Nearly all aware oncologists have prescribed it in the last 12 months. Approximately 80% of oncologists expect to increase their OGSIVEO usage over the next year.
More than 90% now view the systemic therapy as the guideline-recommended first-line approach for progressing desmoid tumors. These leading indicators actually reinforce my confidence, our confidence in continued demand growth and the long-term opportunity for OGSIVEO.
That is encouraging. Still there is a gap, as always in medicine, between awareness to, for example, avoiding surgery and actually avoiding it. This, particularly in the context of a chronic non-lethal disease, this takes time.
We also expect commercial execution to strengthen in the fourth quarter and beyond, as we now benefit from a fully deployed field organization and some recent investments to improve even further patient identification, treatment initiation, and persistence. Also new data generation studies are underway in key geographies to provide important answers, and this will also help improve the treatment of desmoid tumor patients.
There is one more important thing that I would like to mention, and this relates to both products. We are picking up very nicely ex-U.S., and in fact, in the next year, we are going to launch in about 15, 1-5, countries. And the experience in some countries in Europe, also outside of Europe, like Saudi, like Emirates, has been super positive.
And I guess that you know in rare diseases, one should not always expect two-thirds or higher of the revenue coming from the U.S. Now, a couple of words on Gomekli. There are some similarities to the market situation with Exxivio, but don't treat it as one-to-one. Q3 increased 80% for Gomekli year-over-year, driven primarily by continued, again, demand in the U.S., in addition to patient uptake also in Germany and named patient sales, which is encouraging.
The sequential growth in Q3 is supported by very solid underlying patient dynamics. New patient starts increased more than 20% compared with the previous quarter, with actually September being one of the strongest months since launch. We're also encouraged by patient persistence, reflecting both the product tolerability profile, which we knew it would be great, and our ongoing patient support initiatives, which we are very strong at.
Now, turning to competitive dynamics. As you know, for Gomekli, we have already competition, which has been in the market for more than five years. I'm actually very pleased with our positioning in both the adult and the pediatric segments. Adults now represent approximately 70% of our treatment volume.
We were the first approved treatment for adult NF1-PN in the U.S., and Gomekli has established itself, clearly established itself as the leading brand for new adult patient starts. We also continue to build adoption in peds, supported by our, I would say, differentiated clinical profile, tolerability, and convenience. Same potential for expansion and same continued efforts that will bring us to the, I would say, to the promised land, although it will take more time for both products.
Excellent. Thank you.
Thank you. We are now going to take the next question. This one is from Simon Baker from Rothschild & Co Redburn. Please go ahead.
Thank you very much for taking my questions. Two, if I may, please. Firstly, on the Life Science guidance increase. Given the narrowing of the range, the increase at the bottom end rather than the top end because of the Bio-Techne inclusion, I just wondered if there were any other pushes and pulls beyond Bio-Techne within that, or it is simply a narrowing of the range as we are three quarters through the year.
Secondly, a question for Danny on Silence Therapeutics. Clearly, the deal was driven by divesiran, but I just wondered if you could talk about the opportunities as you see them beyond divesiran. There are a few other things in the portfolio, and particularly zerlasiran in light of the pelacarsen HORIZON data. Thanks so much.
Let me take the first one, and it will be a short answer. Bio-Techne will be treated as portfolio effect. Bio-Techne will have no impact on our organic growth.
Regarding Silence, yes, of course, we are super excited with divesiran. Very strong phase II data that point to actually tick many boxes in what we told you in previous months. Homogeneous populations, rare diseases, phase II endpoints that de-risk phase III. So, we are super excited about the potential.
To your question regarding the Lp(a), you saw the recent presentation of the Novartis drug. It is super disappointing. The drug clearly does pharmacodynamically what it is supposed to do, but clinically, not a lot, I would say. From our perspective, the Lp(a) project is not something that we will continue pursuing.
Great. Thanks so much.
Thank you. We are now going to take the next question. This one is from Thibault Boutherin from Morgan Stanley. Please go ahead.
Yes, thank you very much. One question on Electronics. If you could give us some colors on the trends in the Delivery Systems & Services in the quarter. Has it been a meaningful contributor? Was there a change in trend? Do you have visibility into Q4 and how we should think about it in 2027?
Just a clarification on the PS phasing you mentioned, and Q4 growth being mid-single digit. Can you confirm that this phasing means strong nine months of the year, and positive phasing in first nine months leading to negative phasing in Q4? Is it phasing into next year? Thank you.
Hey, Thibault. Thank you very much for your question. It's Ben speaking. Appreciate you. Regarding DS&S, let me give you some color. Overall, Delivery Systems & Services is growing, but it was diluted to Electronics growth in Q3. Just as a reminder, DS&S accounts for less than 15% of the overall Electronics business.
Given its relative small base, the timing of large projects that, again, we're executing right now, can swing it quite easily within quarters. Large projects were again the main driver this particular quarter. We take on new projects only very selectively when they make economic sense for us, so we don't include them into our base. What is encouraging, though, is that equipment has been recovering.
Remember last quarter, we committed that DS&S will be stabilizing, and it's actually the equipment part's recovering quite nicely since the trough at the end of last year, which should make DS&S overall less dependent on the large project business over time.
The key growth driver of Semiconductor Solutions remains the semiconductor materials business, which again is fueled by AI and also the advanced nodes. We've been seeing the 11th consecutive quarter of year-over-year growth in semiconductor materials with an average of low teens.
Hi, Thibault. Jean-Charles speaking. Let me clarify and answer your question on Process Solutions. More than anything else, we are talking about phasing effects from Q3 to Q4. What does it mean? It means that when you look the full year, we are very confident. I am very confident that the performance of Process Solutions will be in the higher range of the bridge of guidance we said between 8% and 12%.
On top, I would like to repeat what I said earlier. A good indicator is our book-to-bill ratio, and we are marching towards to have a book-to-bill ratio for the full year 2026 above one. If you think about Process Solutions in 2026, I will say we are confident in our outlook, and we are marching towards a very strong performance this year.
Thank you. We are now going to take the next question. This one comes from Charles Pitman-King from Barclays. Please go ahead.
Hi, guys. Charles Pitman-King from Barclays. Thanks very much for taking my questions. Two from me, please. Firstly, just on EPS into next year, noting the raised tax guidance, guided biotech in the EPS dilution, and the Silence Therapeutics versus Lonza CDMO sale impact on net financials, as well as Mavenclad's erosion in from Q3 next year. Just wondering if you can confirm whether the margin expansion from Life Science and Electronics will enable you to grow your EPS next year.
Secondly, on Process Solutions, in terms of the order book, can you just remind us on the typical lead time for your assets, given Merck's primarily exposed to the consumable side of the life science market, should imply a shorter lead time, and what that then implies for the strength and visibility you have on the durability of this order trend? Just effectively this expectation of a declining order trend in FY 2027, certain are you of this?
Hey. So again, it is a bit hard without giving a guidance to talk about EPS, but I can give you a bit of push and pulls if that is helpful. Number one, as you have seen, we have hedged Bio-Techne in the interest rate. That will be an important input factor. Number two, we were very clear on Healthcare that we will retain above the 30% margin.
As I already said earlier, we are also looking pretty confident that we will be able to have that 30% margin in Life Science and Electronics. I think with that, you get most of the parameters to put the model together, and more to come next earnings call.
Hey, Charles. Jean-Charles speaking. To your second question concerning the PS lead time and visibility, I mentioned several times that learning from the past, we have been able to rebuild our business trend history by region, by customer, by product order type, and back to 2018.
We have more or less eight years of history, and I will say we are back to normal lead time now for a few quarters, and the average lead time is in the range of, call it, one to six months for Process Solutions.
Maddalena, we have time for one last question.
Thank you. The last question comes from the line of Oliver Metzger from Oddo BHF. Please go ahead.
Yeah. Good afternoon. Thanks a lot for squeezing me in. First question is on Discovery Solutions. We see a, I would say, more mute development already for some time. You mentioned in your slides biology as growth driver, also academia stabilizing. I am sure you will not give a guidance for next year, but it would be great to hear some of your thoughts about a normalization over the next quarters.
My second question is also a follow-up on OGSIVEO and Gomekli, because you already gave a hint saying, "Okay, it does not make sense that U.S. accounts for two-thirds." Can you remind us about the patient potential of a market outside the U.S. versus the U.S.? Thank you.
Let me start with Discovery Solutions. Very high level, our Discovery Solution, we have two franchises within this business, biology and chemistry. We are also leveraging our multi-channel approach, meaning leveraging on our dealers, our beautiful e-commerce platform, our sales specialists, sales generalists.
I will say overall in the current market dynamic, we are seeing it is true stabilization around academia. We are also seeing kind of normalization across customer segments and regions. In a nutshell, thinking about Discovery Solution, we should assume low single digits organic growth for this business. Again, I am talking low single digits without thinking about Bio-Techne acquisition.
Thanks, JC. Oliver. Look, regarding the market potential or the patient numbers for OGSIVEO and Gomekli outside of the U.S. When we communicated the deal, we spoke in terms of desmoid tumor, for example, for a potential of around 20,000 patients. But as I said a couple of minutes ago, building that market and changing referrals and physicians' behaviors takes time. So, the potential is there.
The time to get there could be different. The same magnitude of numbers you can think about also for when it comes to NF1-PN, adult versus pediatric, adults plus pediatric also in Europe.
You can think about the same numbers. Here, I would say in adults inside and outside of the U.S., the potential is higher because many of these adults that are not treated do not usually visit centers of excellence like kids.
But here, I want to say something else. When we communicated the deal, we clearly said that one of the key value drivers is the global expansion for both products. As I said a couple of minutes ago, you should expect the contribution of ex-U.S. to be quite significant here. This is our strength, not just in Europe, not just in China.
China will be there, Japan, but also emerging growth markets. I mentioned the Middle East. There will be more. So, 15 launches only in the next year for each of the brands. That is a lot, and this is what you should think about when it comes to the potential.
That is helpful. Thank you.
Thank you. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.