The need to develop drugs, vaccines and diagnostics that help bring the coronavirus pandemic under control has sparked an unprecedented surge in R&D and manufacturing activity. As a provider of life science products that enable such activity, Merck has benefited from the rush to create products.
Merck quantified the effect of the pandemic on its financial performance in its second quarter results, revealing that a 20% jump in sales at its process solutions division offset pandemic-related weakness elsewhere in the business.
“We saw demand shifting further away from academia towards pharma and biotech,” said Merck CEO Stefan Oschmann. “COVID-19 related demand from therapy and vaccine developers had a net-positive effect on sales and even more so on the order book.”
Oschmann identified downstream and single-use products as the main drivers of the double-digit growth at the process solutions division. A graph shared by Merck shows pharma and biotech sales jumping in June.
Demand for downstream and single-use products partly mitigated the negative financial effects of the pandemic. Even so, COVID-19 still delivered a net negative impact in the mid-double-digit million euro range.
The headwinds experienced by Merck in the quarter were in line with the progress of the pandemic and responses to it. Sales in North America slowed to low single digits, while Asia Pacific accelerated to achieve double-digit organic growth. Europe posted high-single-digit growth.
In terms of customer segments, the closure of academic labs in response to the pandemic meant the research solutions unit had a weak quarter. Academic was the only customer segment in decline but now appears to be bouncing back, with Oschmann seeing “encouraging signs of recovery in June.”
By June, academic sales were back up toward pre-pandemic levels, having slumped significantly in April and, to a lesser extent, May.
The recovery of demand from academic labs could add to growth related to the industry response to the pandemic. Merck KGaA CFO Marcus Kuhnert said the company had experienced “significant surge demand ... stemming from customers active in the areas of COVID-19 diagnostics, vaccines and therapies.”
That surge demand translated into a 40% increase in the order book of the process solutions division over the first half of the year. Merck is adding capacity to cope with the jump in demand.
Merck is working on the assumption that the downsides of COVID-19 will start to fade, while some of the upsides will prove to be durable. Those assumptions led Merck to predict it will achieve “slight to moderate” organic growth this year across its entire business, which extends well beyond life science products.