(Bloomberg) -- Merck KGaA said it’s seeing the beginning of a post-Covid pandemic rebound in life sciences as it reaffirmed the group’s sales and profit guidance for the full year.
The German science and technology group said customer demand for raw materials and supplies in its life sciences division, which makes components for therapies and vaccines, is returning after a period of destocking following the pandemic.
“All the visibility that we have is confirming that the majority of our major customers are already back to normalized inventory levels,” Chief Executive Officer Belen Garijo told Bloomberg ahead of a capital markets day in Darmstadt on Thursday.
Garijo said life sciences is “structurally attractive” even as she slightly trimmed the top end of the unit’s mid-term average annual sales growth target to 9% from 10%, citing the outlook in China and local competition.
Shares of Merck rose 8% in early trading after it reiterated that overall organic sales could rise as much as 5% this year with earnings up as much as 10%. The company is still trying to return to its form during the pandemic era when life sciences sales soared and its drug pipeline appeared healthier. The company’s stock is down nearly 30% since peaking in December 2021.
Rival life sciences company Sartorius AG also reported Thursday that the business has stabilized with most customers increasing demand for products in an update that pushed its stock up as much as 20%.
AI Boom
The electronics division is currently a bright spot for Merck. Driven by high demand for chips amid the artificial intelligence boom, the company raised the outlook for its smallest division and said it now sees annual organic sales growth of 5% to 9%, compared with 3% to 6% previously.
“We have a podium position in electronics today in semiconductors and our portfolio is extremely well fit to fulfill our customer needs and customer expectations, mainly AI,” said Garijo.
It was more of a mixed picture in Merck’s health-care division which has suffered a number of high-profile drug trial setbacks. The company now only expects slight growth from the unit in the mid term, compared with a prior forecast of a mid-single-digit percentage increase in annual sales. The company recently abandoned development of head-and-neck cancer drug Xevinapant and multiple sclerosis therapy evobrutinib after they each failed to show benefit in late-stage trials.
Asset Hunting
Garijo said while the top priority for larger acquisitions is the life sciences unit, she’s also looking to boost the health-care arm through bolt-on acquisitions.
“What we are looking for is complementary assets that can bring opportunity without elevating the risk of our pipeline,” Garijo said. “We will continue to invest in health care mostly in the form of licensing.”
Garijo is hunting for assets in the late stages of development that have already shown proof of concept. She pledged not to follow rivals paying “outrageous amounts of money on things that at the end do not work.”
Citi analysts led by Peter Verdult said that although divisional mid-term targets have been changed Merck’s outlook is still forecasting as much as 5% revenue growth.
“While sentiment is weak, we see the shares significantly underpinned given the life sciences division alone could justify a more than €140 per share valuation,” Verdault said.
Merck is unaffiliated with the US-based Merck & Co.
--With assistance from Lisa Pham.
(Updates with share price, analyst comment.)
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