Corporate

Merz’s New Strategy Sets the Stage for Successful Growth

A moderate 1.4% increase in revenue to EUR 994 million; strong core business offsets a falloff in royalties; acquisitions give impetus to the new strategic alignment

As forecast, the Merz Pharma Group cushioned the impact of lower royalties in fiscal year 2013/14 through organic growth in its core businesses, Aesthetics and Neurotoxins. At EUR 994 million, Group revenue was on par with the prior-year figure, showing a moderate 1.4% increase. EBIT was EUR 247.2 million, a decrease of EUR 88.7 million compared with the prior-year figure due to a falloff in royalties on Memantine, a drug for treating dementia, and to higher spending on research and development and on lifecycle management for existing products. Accordingly, the EBIT margin—earnings before interest and tax as a percentage of revenue—decreased from 34.3% to 24.9%.

Merz Pharma earned revenue of EUR 874 million from its international business (up from EUR 837.4 million in the previous year), which accounted for 87.9% of Group revenue (up from 85.4%).

A Year of Strategic Change

Fiscal 2013/2014 was a year of strategic change for Merz. With a series of significant acquisitions, the family-owned business has consistently developed into a global provider of specialty pharmaceuticals in its core businesses of Aesthetics and Neurotoxins. “We have set ourselves the goal of turning Merz into a leading company in these areas through new product development and acquisitions,” stated Philip Burchard, the CEO of Merz since July 2012. With patent expiration reducing revenue from the former blockbuster Memantine, Merz has been continually and significantly expanding its Aesthetics business. “In this area, we intend to bring out a steady stream of innovative products so that we can offer our customers a complete portfolio,” stressed Mr. Burchard. In its core Neurotoxins business, the company’s primary focus is on the treatment of neurologically induced movement disorders. Merz plans to strengthen its status as a specialist provider and tap into the potential of its botulinum toxin by developing new indications. Regionally-specific offerings like medical dermatology products in the U.S. are also slated for lasting growth.

New Structures

In order to respond effectively to regional requirements and market realities, Merz will be abandoning the former geographic breakdown into Western Europe, North America, and Emerging Markets. From now on, its business will be organized on the basis of four regions: EMEA, North America, Asia-Pacific, and Latin America. Top management will henceforth be in the hands of an expanded Management Board, as is common practice in English-speaking countries. On July 1, 2014, Beat Neukom became the CFO. Further appointees to the new Management Board in the summer of 2014 were Lawrence Siow, representing Asia-Pacific, and Matthew Likens from the U.S. firm Ulthera.

Growth Through Acquisitions

Merz carried out two strategic acquisitions in 2013. In July, the company bought out the Swiss cosmeceuticals firm Neocutis S.A., which chiefly markets aesthetic dermatology products via physicians in the U.S. This acquisition has put Merz in a position to offer a complete line of dermocosmetic skin-care products for before and after aesthetic treatment.In November 2013, Merz acquired its long-standing aesthetic medicine product distribution partner in Switzerland, Anteis S.A. As a result, Merz now owns the global rights to the hyaluronic acid filler Belotero®, the Anteis production facilities, and a pipeline of future filler products. The takeover of medical device maker Ulthera for up to $600 million in July 2014 (the current fiscal year) represents the largest acquisition ever carried out by Merz. The Ulthera System uses a non-invasive, focused ultrasound procedure to tighten and lift skin on the face and neck, and to smooth the décolletage. As a so-called “energy device,” the Ulthera System gives Merz access to an entirely new aesthetics market niche.Thanks to this latest acquisition, Merz now possesses a unique, well-aligned portfolio that can address the varied needs of both patients and their physicians for innovative products.

Business Expansion in Asia-Pacific

A new regional focus for Merz is Asia-Pacific, a booming market slated for further high growth. To strengthen its position in the region, Merz has established subsidiaries during the past year in China and Australia while expanding its regional office in Singapore.

High Investment in Research and Development

In fiscal 2013/14, the neurotoxin products Bocouture® and Xeomin® were central to Merz’s research and development work. R&D outlays across the entire Group totaled EUR 146.9 million, or 14.8% of revenue. R&D spending during the fiscal year was shaped by the two acquisitions and a strategic shift in research focus. While further developing its neurotoxins, Merz also put time and energy into creating a filler center of excellence at the research location in Frankfurt am Main, where the development expertise of the recently acquired Anteis S.A. has been successfully integrated. Earlier projects in neurology and ophthalmology were discontinued, with the result that the R&D portfolio now faithfully reflects Merz’s strategic turn to Aesthetics and Neurotoxins.

Revenue Steady Thanks to Rising Product Sales

By expanding its product portfolio and focusing on high-growth business areas, Merz has successfully offset the loss of revenue and earnings caused by competition from generics for its Alzheimer’s disease medication Memantine. Group revenue for fiscal 2013/14 was up by EUR 27.5 million as a result of high product sales, even as royalties decreased by EUR 13.7 million.

A decisive growth-driver in the past fiscal year has been international business. Merz Pharma recorded sharply increasing revenue from Asia (up 24.1% at constant exchange rates) and the U.S. (up 8.5% at constant exchange rates) in particular. Business in Russia also showed vigorous growth despite a weaker ruble. In Merz Pharma’s home market as well, the results were gratifying. Fiscal 2013/2014 was in fact the most successful year for the botulinum toxins Bocouture® and Xeomin® since they were launched in Germany.

Although a medium-sized firm, through consistent implementation of its corporate strategy, Merz has built itself up in the past fiscal year into the world’s third leading aesthetic medicine company.

Merz Consumer Care Outperforms the Market

Merz Consumer Care once again outperformed the market this past year with its tetesept? and Merz Spezial? brands. Key contributors to that performance were the successful introduction of innovative product concepts in retail, expanded category management, and numerous lifecycle management initiatives. At EUR 67.8 million (compared with EUR 63.6 million in the previous year), Merz Consumer Care generated roughly 7% of the Group’s total revenue.

Merz Dental sales accounted for roughly 2% of total revenue. The subsidiary recorded growth of 4% overall, and of 6% in its core dental technology business.

More Employees Abroad

As of the June 30, 2014 reporting date, the Merz Pharma Group had a workforce of 2,738 employees, up from 2,443 in the preceding year, representing a 12% increase. A total of 1,548 employees were located outside of Germany, compared with 1,259 in the previous year, representing 56% of Group headcount. This shows that the trend of having a larger share of the Merz workforce abroad than in Germany has continued.

Sound Conditions for Further Growth

In its guidance for fiscal 2013/2014, Merz Pharma assumed that revenue growth would roughly offset any decrease in royalties. With Group revenue up 1.4%, the company in fact did slightly better than forecast.

Merz Pharma expects a similar single-digit revenue increase in fiscal 2014/15. Buoyed by the acquisition of Neocutis S.A., Anteis S.A., and Ulthera, armed with such successful products as Radiesse?, Belotero?, Xeomin?, and Bocouture?, the company is confident that it can meet the challenges of this new year and handle a further decrease in royalties. In its core businesses, Merz will continue to expand its footprint abroad through targeted activities and significantly strengthen its presence in Germany. In addition to the booming market for botulinum toxins and fillers in North America, the company sees considerable potential for sales growth in Asia-Pacific.

CEO Philip Burchard is convinced that strategic realignment was the right move for Merz. “With our sharp focus on Aesthetics and Neurotoxins, we are heading in new directions and setting our sights on promising market segments. But even as we embark upon the cultural change involved in this strategic shift, we can proudly look back on a century of tradition. Merz is and will remain a privately held, family-owned company, which means that we build on continuity in our values,” he stated. “In a way, we are going back to our roots,” he added. “Over and over in the course of its 106-year history, our company has developed personal care brands.”

About the Merz Pharma Group

Merz is a privately held pharmaceutical company based in Frankfurt, Germany, with subsidiaries in European countries, North America, Latin America and Asia Pacific. The company is active in research, development and distribution of innovative products in the areas of Aesthetic medicine and neurologically induced movement disorders.
In the Aesthetics segment Merz offers a balanced portfolio of products for minimally invasive treatments. With the dermal fillers Radiesse®, Belotero®, Glytone® and the Botulinum Neurotoxin Bocouture® as well as the Neocutis line of anti-aging, the company is a major player in the global Aesthetics market. Our offerings were supplemented by ultrasound-technology after the acquisition of Ulthera in mid 2014. For the treatment of neurologically induced movement disorders, Merz developed Xeomin®, the first botulinum toxin that is free of complex proteins.
With its tetesept® and Merz Spezial® brands, Merz Consumer Care is the leading provider of OTC medication, dietary supplements and skincare products in the German-speaking countries.
The Merz Pharma Group employs 2,738 people worldwide (previous year: 2,443). The Company generated revenue of EUR 994 million in fiscal year 2013/14 (previous year: EUR 980.2 million).



Press Contact

Merz Pharma GmbH & Co. KGaA

Corporate Communications
Ute Weinhold
Corporate Communications
Eckenheimer Landstraße 100
60318 Frankfurt

Phone:+49-(0)69-15 03-889
Fax:+49-(0)69-15 03-9889
Email: ute.weinhold@merz.de