Merck KGaA (MRK) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on Second Quarter 2026. [Operator Instructions] 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, Heidi. Good afternoon, good morning, everyone, and welcome to our Q2 '26 results call. Thank you for joining us today. My name is Florian Schraeder, and I'm the Head of Investor Relations at Merck. In our Q2 call today, Kai Beckmann, Group CEO, will begin with sharing an update on first steps since we announced our new strategic direction in May. Kai will then provide a brief overview of our business performance and key developments in the second quarter as part of his executive summary. Helene von Roede, Group CFO, will guide you through the detailed financial overview. Before we move into the Q&A session, where we will be joined by Jean-Charles Wirth, CEO of Life Science; Darren Verlenden, CEO of Healthcare; and Benjamin Heim, CEO of Electronics, Kai will share our updated outlook and guidance with you. With that, I'm pleased to hand it over to Kai to kick us off.

Thank you, Florian, and good afternoon, good morning, and thanks to you all for joining us today. So before we get to the numbers, let me first give you a sense of where we stand strategically and highlight the milestones we have achieved in recent months since announcing our strategic direction in May. Each of these milestones addresses the evolving expectations of our customers and patients in an increasingly complex world. Geopolitical tensions, shifting trade dynamics, active policy debate and accelerating AI-driven technology rates are all shaping the environment in which we operate. In this context, only a clear plan and disciplined execution will move us closer to the sustainable profitable growth we are building for our company. Allow me to share a few early proof points. Let me start with the signing of a definitive agreement to acquire Bio-Techne Corporation on June 25. Subject to regulatory approval and closing, Bio-Techne's complementary portfolio of high-quality reagents, analytical instruments and diagnostic systems for precision medicine is expected to be immediately accretive to sales growth and margins. In parallel, we continue to invest in the capacity required to scale our manufacturing and R&D in electronics, delivering precise, reliable and scalable solutions across the semiconductor value chain. In June, we opened a new metrology and inspection site near Ko, France. This EUR 20 million investment will expand our capacity for M&I tools in a key semiconductor hub. Our rare diseases portfolio continues to show strong momentum, and our pipeline has also advanced and GOMACli both delivered quarter-over-quarter and year-over-year growth. In addition, pimicotinib generated first sales in China and preparations for a U.S. launch are underway. The FDA granted breakthrough therapy designation for enpatiran for the treatment of lupus with active cutaneous manifestations. And the first patient was dosed in a Phase III trial evaluating our anti-CEACAM5 antibody drug conjugate, preRSMTCT for the third-line treatment of metastatic colorectal cancer. So I stop here for today. Going forward, we will continue to share further proof points demonstrating that we are focusing investments where we see the strongest growth opportunities. We will make it easier for customers to work with us through more integrated solutions, and we will share capabilities more effectively across the company. And we will continue to use partnerships and acquisitions where they accelerate progress. And with that, let me turn to our operational and financial performance in the second quarter. So Q2 was a pretty robust quarter. Following a solid start into the year, we continue to build growth momentum in the second quarter. Organic sales growth accelerated to 4.1%, supported by strong contributions from Life Science and Electronics. In Life Science, growth was broad-based across all regions. Process Solutions again delivered strong growth with sales up 15% organically. And as a reminder, we expect the growth profile to normalize in the second half of the year. Advanced Solutions also contributed solid growth, while Discovery Solutions showed slight growth in a still muted market environment. In Healthcare, as I pointed out, rare diseases continued to make a meaningful contribution. To better align with our operational structures, we have reorganized the remaining franchises. Cardiometabolic is now reported on a stand-alone basis, while Fertility and Endocrinology has been established as a newly created franchise. Both were broadly stable in the quarter. Specialty Care, which comprises of neurology and oncology assets, drove the overall organic decline in Healthcare, mainly reflecting the impact from Mavenclad in the U.S. and continued competition for Bavencio. In Electronics, organic growth accelerated significantly to 12% in Q2. Semiconductor Solutions delivered very strong organic growth of 17%, fueled by continued momentum in advanced nodes. Optronics remained broadly stable, while headwinds in consumer electronics end markets are expected to increase further. As a result, we delivered on our ambition to generate profitable organic growth for the group while continuing to invest in innovation. EBITDA pre margin expanded year-over-year by 1.6 percentage points to 29.4%. And based on these robust results, we are raising our full year guidance, and I will share the details with you later in this call. Looking now at the group bridge in more detail on Page 6. Reported net sales increased by 3.4% year-over-year in Q2. Organic sales growth reached 4.1%, driven by Life Science and Electronics. A negative currency impact amounted to minus 1.1% and portfolio effects contributed 0.4%. In Q1, organic growth of 2.9% was more than offset by disproportionate foreign exchange headwinds and negative portfolio effects. This quarter, the entire mix of organic growth, FX and portfolio effects improved visibly, leading to an accelerated growth momentum. Organic EBITDA pre growth was pleasing 9.3%, also driven by favorable comps in Electronics in Q2 2025. I'm handing over to Helena now to share further details.

Thank you very much, Kai, and a warm welcome also from my side. And with that, let's dive into the overview of key financials on Page 8. Net sales increased from EUR 5.255 billion in Q2 '25 to EUR 5.434 billion in Q2 '26. As mentioned already, this was driven by solid organic growth and easing currency headwinds, while portfolio effects in Healthcare and Electronics largely balanced each other out. EBITDA pre increased from EUR 1.46 billion to EUR 1.6 billion. The organic increase by 9.3% was driven primarily by Life Science and Electronics, while foreign exchange and portfolio effects were close to neutral, leading to reported growth of 9.4%. EPS pre increased by 6.9% to EUR 2.16. And this is achieved despite a visible increase in interest costs related to the financing of SpringWorks acquisition. However, for the full year, we slightly reduced our interest cost guidance, as you can see in the appendix. Operating cash flow increased moderately by 6.7% to EUR 605 million, which does not tell the full story. Temporary effects are partially offsetting structural improvement, and I will come back to this in a minute. Net financial debt increased to EUR 9.2 billion as of June 30, mainly due to the dividend payment. The increase in working capital is largely a Q1 effect with smaller increases in Q2, essentially relating to foreign exchange effects. Now one housekeeping item, which I would like to flag already today is the potential impact of the implementation of IFRS 18. IFRS 18 will become effective as of January 2027. Currently, the calculation of EBITDA pre is based on EBIT. The future EBITDA pre will be based on the newly defined IFRS 18 operating profit or loss to which we will add depreciation and amortization as well as adjustable items. Without going into the details at this stage, our simulations suggest that the deviation of past and future EBITDA pre is less than 2%. With the introduction of IFRS 18, some definitions of some adjustments will be changing. We've prepared a slide in the appendix of this deck, which explains these changes. Now we will share more insights as we get closer to the implementation of IFRS 18. And with that, let us move on to the performance analysis of the 3 businesses. And I'm starting with Life Sciences on Page 9. Life Science sales grew organically by 8% in Q2. Once again, Process Solutions was the key driver. As we already highlighted in Q1, the business is benefiting from strong underlying demand, supported by temporarily stronger purchasing activity in APAC and new customer projects. We saw this already towards the end of Q1 and the temporary uplift continued into early Q2. As anticipated, however, it started to normalize over the course of the quarter. Beyond that, we do not see any unusual effects. We have neither experienced significant delays in customer projects nor do we see a dependency on specific product groups. Our performance remains broad-based. That said, the assumption, which we shared with you in our May call, namely a normalization of the second half -- in the second half of '26, does remain valid. As expected, the Process Solutions order book normalized in Q2. Advanced Solutions and Discovery Solutions are on track. Advanced Solutions grew 4% organically with the research spending environment gradually improving. And Discovery Solutions grew 2% organically despite a muted market environment, including continued softness in China. EBITDA pre increased to EUR 700 million with the margin expanding by 50 basis points to 29%. At the same time, we continue to invest in R&D as a key driver of our future growth and differentiation. Examples of such investments include the launch of [indiscernible] solution, which is a virus filtration solution designed to be more sustainable and to improve throughput for complex and high concentration monoclonal antibodies. We also introduced our first bio-based high-performance liquid chromatography, HPLC solvents, which emit around 26% less CO2 equivalent on average without compromising on performance. And zooming out, there are 2 more topics. First, tariff refunds. Effects from tariff refunds to customers were not material in Q2. For the full year, these effects are reflected in our updated guidance, which Kai will explain in detail in a few minutes. And second, of course, our plans to acquire Bio-Techne. No news is good news. We are on track. Regarding the accounting treatment of the pending acquisition of Bio-Techne, let me remind you that we will see material effects such as recognition of transaction costs only after closing, which is expected by the end of this year or in early '27. Following closing, we would expect immediate EBITDA premargin accretion. We estimate the run rate cost synergies to amount to approximately EUR 140 million by year 3 after closing the year, in which we also expect to see EPS pre accretion on group level. Now over to Healthcare, which is on Page 10. Reported Healthcare sales increased by 2.4% to EUR 2.2 billion. Organically, sales declined by 3.4%, but that was more than offset by positive portfolio effects from our rare disease portfolio at 5.4%. In rare diseases, OGSIVEO and [indiscernible] delivered a combined sales of EUR 207 million in H1, which is fully in line with our guidance. We also saw initial sales of pimicotinib following the private market launch in China. Cardiometabolic sales increased 1% organically amid ongoing constraints in the Middle East and partial reversal of the positive phasing in China, which we flagged to you in Q1. Fertility and Endocrinology sales were about stable. [indiscernible] pricing in the U.S. started normalizing, but peboverus continued to deliver double-digit growth and Sizen was slightly up against tough comps. Specialty Care declined 6% organically, mainly reflecting Mavenclad's loss of market exclusivity in the U.S. and the competitive environment for Bavencio. Notably, Erbitux sales increased 5% organically. We also have seen progress in the late phases of our pipeline. We have dosed the first patient in our Phase III study of PRESEM-CT, which is our first-in-class anti-CCAM5 ADC in third-line metastatic colorectal cancer. Also, FDA has granted breakthrough therapy designation to Ipatiran for the treatment of lupus with active cutaneous manifestations. And we also have recently filed -- and we also recently received file acceptance from the FDA for Pergovoverus. However, uncertainty remains. Healthcare EBITDA pre was EUR 747 million with a still strong margin of 34.7%. This is supported by a favorable product mix and disciplined cost management, partially offsetting higher R&D investments, reflecting the ramp-up of our Phase III pipeline projects as well as launch investments in rare diseases. And let's move to Electronics. Electronics delivered a strong quarter with organic sales growth accelerating to 11.7%. Reported sales were EUR 871 million, reflecting the portfolio effect from the divestment of Surface Solutions. Semi Solutions grew 17% organically, fueled by continued demand in semi materials, driven by advanced nodes in both logic and memory. Overall, growth was supported by all parts of the portfolio. Delivery Systems & Services also had a better quarter due to the finalization of a large project and against a low base. Therefore, I would caution against extrapolating this trend. Optronics remained around stable. However, the business continues to face headwinds from softer demand for consumer electronics influenced by high memory prices. This could result in a year-over-year decline in net sales in the second half. EBITDA pre increased to EUR 244 million with the margin expanding to 28%. This represents a sequential increase versus the underlying EBITDA pre margin in Q1 of around 200 basis points. As a reminder, the EBITDA pre margin in Q2 '25 of 15.1% was suppressed by one-offs. Adjusted for these effects, the year-over-year underlying margin increase would have still been significant. So turning briefly to key developments in our balance sheet. Total assets stood at EUR 52.7 billion at the end of June. Cash and cash equivalents decreased mainly due to repayment of euro-denominated bonds. Receivables increased due to continued strong sales performance, while inventories increased mainly in Life Science and Healthcare to support future growth. Worth noting is that we saw the main uplift of receivables and inventories in Q1. The incremental increase was basically driven by FX effects in Q2. Intangible assets increased mainly due to foreign exchange effects. On the liability side, financial debt increased compared with year-end '25 as the repayment of euro-denominated bonds was offset by an increase of financial liabilities to related parties and by the U.S. dollar bond increased to foreign exchange effects. The equity ratio increased slightly to 57%. And I would like to round off with a few remarks on cash flow. Operating cash flow in Q2 was EUR 605 million, up from EUR 567 million in the prior year quarter despite a decrease in profit after tax. Profit after tax was lower due to reorganization provisions, higher R&D expenses as well as increased depreciations and amortizations mainly due to the acquisition of SpringWorks. Most categories in the cash flow statement showed favorable underlying improvements, and I want to highlight net working capital optimization in particular. These effects were offset by temporary changes in the tax balance and paid bond interest. The underlying cash generation has visibly improved in recent months and will remain a strong focus going forward as we strive for fast deleveraging after closing of the planned Bio-Techne acquisition. Investing cash flow was higher, driven by short-term investments and payments for the acquisition of the JSI chromatography business. Financing cash flow reflected the repayment of the euro-denominated bonds. And with that, back to Kai.

So thanks a lot, Helena. And let me now round it off with guiding you through our raised guidance for 2026 on Slides 15 and 16. So we now expect organic growth in group net sales of 1% to 3% compared with 0% to 3% previously. Compared to the previous guidance, we see easing headwinds from foreign exchange rates. Foreign exchange impact is now expected to amount to minus 2% to 0% after minus 3% to minus 1% previously. Hence, group net sales are expected to reach around EUR 21 billion to EUR 21.8 billion. The midpoint of this range equals the high end of our previous net sales guidance of EUR 20.4 billion to EUR 21.4 billion. For EBITDA pre, we now expect EUR 5.9 billion to EUR 6.3 billion compared with EUR 5.7 billion to EUR 6.1 billion previously. This reflects an organic development of 0% to 3% compared with minus 2% to plus 2% before. EPS pre is expected to be in the range of EUR 7.90 to EUR 8.60, a 5% increase compared to the previous range of EUR 7.50 to EUR 8.20. At the business sector level, you can see how the numbers come together. For Life Science, we are raising the lower end of our expected organic net sales growth range from 4% to now 5%. The new range of 5% to 7% organic sales growth also includes a potential headwind from tariff refunds to customers of around EUR 40 million. EBITDA pre organic growth in Life Science is now expected in a range of 5% to 8% compared with 4% to 8% previously. The range of around EUR 2.6 billion to EUR 2.8 billion remains unchanged. For Healthcare, we now expect organic net sales development of minus 4% to minus 2% compared with minus 6% to minus 3% in May. This is driven by our assumptions on Mavenclad U.S., now assuming 0 sales as of August and slightly better performance in the other parts of the business. Our assumptions continue to exclude the potential [indiscernible] launch in the U.S. in 2026. And as of July 1, OGSIVEO and GOMEKLI will be recognized as organic sales. The related portfolio effect is therefore limited to the first half of the year and amounts to plus 2.4% or EUR 207 million in absolute terms. EBITDA pre in Healthcare is expected to be around EUR 2.8 billion to EUR 3 billion compared with EUR 2.6 billion to EUR 2.8 billion previously. For Electronics, we are raising our organic net sales growth guidance to 6% to 9% from 3% to 7% previously and the portfolio effect from Surface Solutions divestment amounts to minus EUR 245 million. EBITDA pre for Electronics is now expected to be around EUR 1 billion compared with the previous range of around EUR 0.9 billion to EUR 1 billion. The respective range for organic growth moves from 21% to 27% to 25% to 29%, reflecting the recovery and operating leverage in Semi Solutions. With that, allow me to conclude with a brief summary before we open the lines for Q&A. We delivered a robust second quarter with accelerating organic sales growth and even stronger organic EBITDA pre growth. The first half of the year confirms the resilience of our broad portfolio and the relevance of the strategic priorities we outlined earlier this year. We are encouraged by the continued momentum in Life Science and Electronics, and we remain disciplined in Healthcare as we invest in our launches and pipeline. Our increased full year guidance reflects these positive developments. And we will remain focused on executing our strategic agenda, including a potential start of the integration of Bio-Techne following a successful closing potentially at the end of this year or early next year. Cost discipline will remain a priority, while at the same time, we continue to invest in innovation to sustain profitable growth in the future. So with that, I will now hand it back to Heidi to open the lines for questions.

[Operator Instructions] Your first question comes from the line of Peter Verdult from BNP Paribas.

Peter, BNP Paribas. Two questions to kick off for Kai or Helena. The stock has done well this year, but the key debate in the market is quickly turning to 2027 and the ability for Merck to post organic growth given the Mavvencladd and Life Science customer stocking tailwinds you've enjoyed this year. So I realize you're not going to give guidance per se on a Q2 conference call, but would like to kick the tires with you and gauge your current level of confidence about organic growth prospects in 2027. And then secondly, more sort of nary for Danny, good to hear that Pergovirus has been filed. Potential uncertainties were flagged in the prepared remarks. Can you confirm these comments relate to the label you get rather than the approvability of Pergovirus? And if that is correct, can you just remind us what the best case scenario would look like with respect to the label -- the FDA label should the product get approved?

So Peter, thanks for the 2027 question. And we upgraded our guidance twice this year. Life Science Electronics showing pretty robust growth and healthcare is holding up reasonably well amid the generic competition we're seeing. And as we look at the 2027 fundamentals and the underlying trends are very well intact for Life Science and Electronics. And Healthcare is focused on executing the strategic agenda in next year. And basically, 2027 should be well in line with our projections from last year's CMD. Just as a first highlight, will be very much in line with our projections from last year's CMD. Obviously, of course, the comps will be tough for Mavenclad, no doubt. And Process Solutions will have a high comparison base in the first half of 2027 as we compare with a very strong first half in 2026. And looking at the proposed transaction to acquire Bio-Techne, if closed in line with our plans, it would add close to 5% to group sales growth and about 10% to Life Science alone. And also, the transaction would be immediately accretive to group EBITDA pre margin, and we are committed to EPS pre accretion in year 3 post closing. That should give you some color on how we look into 2027 from today's perspective. And as you rightly said, of course, we're not providing any 2027 guidance at this time of the year, but just some color on the question you were asking. And I hand it to Danny for the second question.

Yes. Thanks Kai. Peter. So yes, the FDA has notified us late last week of the acceptance of the full BLA submission. This is per se, this is good news, yes. It's a good milestone. [indiscernible] is a great product. As Helena said, however, the uncertainty remains over the potential approval, and I will give you a little bit more color on that. First of all, just to frame it, parvovirus is the only recombinant FSH LH combination in the market. And I would say, an important innovation for patients who need that. The product is approved in 116 countries around the globe, including China since February this year. It's been growing and taking share in every market where available, underpinning the value that it brings to women struggling to have a baby. As a matter of fact, over 6 million babies have been born worldwide with our fertility medicines. In 2026 only year-to-date, parvovirus generated sales of over EUR 300 million, 5 years CAGR of over 20%. Now of course, we are keen to bring parvovirus also to the U.S. one of the largest and most innovative pharma markets. We were, I would say, delighted to have received the CMPV as part of our agreement with the White House at the end of last year. However, as we told you before, the procedure as itself is quite new, and the submission is based on a lot of legacy data, mostly generated outside of the United States. So you also need to keep in mind that in the past years, we have already had intense discussions with the FDA regulator and could not agree on a path forward. Hence, we feel there is considerable uncertainty to Helena's point about whether the package now is sufficient for the FDA to approve. You also asked how could a best case label look like. So here, I would easily refer you to the EU label or the Canadian label, so you can get a sense. That's where we are now.

Your next question comes from Matthew Weston from UBS.

Two questions, please. The first on Process Solutions and this comment on normalizing over the quarter. I think I understand, but I'm going to ask you to spell it out. Are we saying that the extra demand has stopped, but the extra inventory remains with the customer, and therefore, customers -- and therefore, at some point in time going forward, we should expect that inventory to unwind. And I guess, previously, you've said no customer is greater than 5% of TS sales, but I assume we can't say something similar for the inventory. It will be more concentrated. And then secondly, on atacicept royalties. There's been a lot of debate about their leverage to Merck in the market. I know you've said it before. Can you please remind us how much of the royalty you receive and how much you have to pass on?

[indiscernible] speaking. I hope you're doing fine. So let me try to clarify the situation. I will start with the Q2. So in Q2, in Process Solutions, we grew organically 15%. And I would like to give you some background behind. We have 5 key drivers. The first one, the market demand remains healthy. The second driver, we continue to benefit from our new go-to-market model. And a few months ago, I mentioned that we are improving our sales level, which have a positive impact on our overall performance. The third element is linked to what I said back in May when I mentioned that we have observed, especially in March, special buyer patterns from a few -- very few Asian customers linked to our ongoing geopolitical, let's call it, Middle East conflict. The fourth driver was exceptional growth in China, mainly due to the fact that some customer order equipment in order to build new plan. And the last element is related to the fact that we enjoy some boost on order intake and sales from nonrepeat order, which are related to our integrated workflow solution offering. To answer your question, from the 5 drivers, the last 3 are the one who are boosting our performance in Q2. To your question concerning the inventory destocking, we do not anticipate any destocking effect in 2026. But you should assume in your model that if we have some inventory destocking effect, it may take place in 2027.

So regarding atacicept, so yes, the drug received approval for IgA nephropathy several weeks ago. And to your question, Matthew, it's fair to assume that there remains a meaningful obligation from Merck to BMS when it comes to potential milestones and royalties. And as we are expecting a launch here, in virtually every scenario, the net royalty rate, the net royalty rate upside would remain for us in the single-digit percentage range.

Can I just push you? I know there were about EUR 600 million of milestones in the original out-licensing agreement. Is it fair to assume that there will be milestones also to Merck over the course of the launch and commercial revenue hits?

The answer is yes.

We will take our next question. Your question comes from Sachin Jain from Bank of America.

Just a few questions for me. So just a follow-on on the process. So could you confirm that process for the full year is still in the upper end of the 8% to 12% you referenced on the last call? Or does the 1H strength take you slightly above that, just given what would be implied for the second half? Second question on semis is around sustainability of the mid-teens for materials and what's assumed within the guide? And then I just -- I wonder if I could just clarify the '27 comment, Kai, apologies. It sounded to me like the Bio-Techne was the main offset to the tougher comps in the base? Or are you confirming mid-single-digit organic growth, which is what you said at the '25 CMD? [indiscernible].

I take the '27 question first, Sachin, just to clarify. So the comment on the commitment from the CMD is organic, of course. And the second comment on Bio-Techne then is, of course, the reported effect. Just these 2 elements I wanted to highlight. But important is the comment from CMD is the organic part.

And Sachin, [indiscernible] speaking. Let me answer the first question concerning Process Solutions. First of all, I would like to take the opportunity to talk about our book-to-bill ratio. If you look at our book-to-bill ratio year-to-date June, so I'm talking about H1, our book-to-bill ratio is above 1. And what we assume now, we expect a normalization of our Process Solutions growth during the second half, but our book-to-bill ratio should remain above 1. In this context, we see a strong underlying of our growth. And if you think about the range we gave 8% to 12%, we are thinking to land in the upper range of the guidance for the full year.

Sachin, this is Ben speaking. Thank you very much for your question on semi. So just to recap, Semi Solutions grew 17% in Q2, and this business is the growth driver for the broader electronics business, both in this year as well as in the midterm. Just as a reminder, Semi Solutions consists of semiconductor materials, which is around 65% of overall electronics sales as well as the delivery systems and services business in short, DSS, which accounts for less than 15% of the total electronics sales. So regarding semiconductor materials coming to your question, sales were up in the low double-digit percentage points organically. Why? Because it's driven pretty much by the AI-related applications in advanced nodes, both on logic as well as memory. It's also good to see that all parts of the portfolio contribute to this growth. And as you remember, over the past 10 quarters, we have seen an average of low teens growth in this business. So in addition, in Q2, we also saw DS&S contributing to Semi Solutions growth that's unlikely to repeat. Our expectations for DS&S only moderately improved. We see a broad stable outlook for the remaining quarters in this year. And just to take a step back, by and large, especially the leading-edge customers that contribute to the AI-driven growth remain capacity constrained, both this year into the second half as well as well into 2027.

Sachin, Jean-Fanc speaking. Just to avoid any misunderstanding, when I mentioned the 8% to 12% organic growth for the full year, I was talking of the Process Solutions portfolio. And just to give you some flavor, I confirm that we still have now ongoing interaction with customers. We are tracking our book-to-bill ratio, order intake, order book and end. What I tried to tell you is we feel very confident for 2026 on Process Solutions.

We will take our next question, your question comes from the line of James Quigley from Goldman Sachs.

I've got 2, please, and I think both for JC. And first one, no surprise, following up on the PF stocking. So you gave a fairly big if when you're thinking about the destocking potential impact in 2027. So how much visibility do you have there over the customers' inventory? Is there a scenario where the higher inventory levels could actually be the new normal for those customers or could reverse or destock on a pretty slow cadence so that the headwind in 2027 is actually pretty minimal? And then second of all, we've heard a lot in the last sort of 18 months or so about the CapEx investments by your pharma customers in the U.S. Have you started to see any progress with respect to the planned significant capacity expansions? Presumably, as a consumables-focused portfolio, it will take a bit of time before it will flow through to Merck. But have you started any discussions or pitches or RFPs or anything like that with customers as they start to assess their CapEx plan? And how are you ensuring that Merck will get its fair share of that capacity as it comes online?

So to your first question about the PS stocking, I would say, as of now, keep in mind that in July, we have limited visibility for 2027. That said, what I can tell you is from a quality of our order, we are back to pre-COVID level in terms of order lead time. So we feel very comfortable with, call it, maybe inventory impact only in 2027, not in 2026. To your second question concerning CapEx by large pharma customer, the answer is yes, we have ongoing discussion with the large pharma customer. Actually, I visited one a few weeks ago, and I had one important meeting, which is scheduled in September with one of our largest customer. I take the opportunity to mention back to the question of Matthew that our largest customer is less than 1% to 2% of our total revenue in any business unit, call it Process Solutions, Advanced Solutions or Discovery. On CapEx, yes, we have exchange. Yes, we are meeting, but it's too early to say to move forward with a clear view. We have ongoing discussion. And my last comment, keep in mind that most of our portfolio is consumable driven, not equipment. So I expect that we'll see some benefit at some stage, but short term, no.

We will take our next question, the next question comes from Richard Vosser from JPMorgan.

A couple, please. First of all, on the [indiscernible]. There was some interesting data at ASCO in another tumor pancreatic. So just thinking about the potential development in further indications, further tumors beyond third-line colorectal cancer. Are you still looking for a partner to further increase investment in the product? How are you thinking about this going forward? Second question, sorry to belabor point on Process Solutions. Just second half, it seems that you're pointing towards an underlying growth rate, something like 10% to 12%, but we should deduct tariff returns of about EUR 40 million from that. But are there any other headwinds that we should think about in the second half? And then just one final little bit on Process Solutions. The new market model you referenced, should we think about this actually allowing you to be more competitive, maybe dare I say, gain some market share against some of your competitors here? Is this something we should see or a little bit early for this?

Okay. Richard, it's Danny. I'll take the first question on the [indiscernible], the SECAM 5. Yes, we are very proud of this first-in-class ADC with data presented at ASCO first in colorectal cancer that keeps on very encouraging. So you're right. At the CMD last year, we told you that we would be looking into the opportunity to partner this ADC. And indeed, we have had very good discussions with several interested parties over the past couple of months, I would say. What we also said at the CMD, I said that personally, including David, is that we will be super disciplined in allocating capital and concentrating around single assets with a lot of correlated risk. All in all, we concluded that we will not pursue partnering of PRISMTCT at that point. We will continue developing the compound in third-line metastatic colorectal cancer. This is a huge global Phase III study. It's a meaningful opportunity for us, and we can do so on our own without compromising on our strategic imperative to, as I said, to reduce high capital intensity on correlated risk. When it comes to earlier lines of treatment as well as the data that you mentioned for pancreatic cancer, we will -- first of all, we are committed to extract the value of this compound, but we will do it in a stage-gated and I would say, very disciplined manner. So we will need to see how the colorectal cancer study progresses, and then we will take additional decisions on combinations and other tumors. The data in pancreatic cancer is indeed positive. It says that the drug is active, still cautious, and we will update as data comes.