Merck KGaA (MRK) Earnings Call Transcript & Summary

Matthias, Karen, Sebastian, thank you very much for sharing these insights. This concludes the [indiscernible] session. Thank you. So now we're ready for the health care session. Next on stage for the spotlight. We have Peter, Peter Guenter, member of the Executive Board and CEO of Healthcare. Yes, let's have a seat. So Peter, welcome on stage. It's good to have you with me here today. I also know that you brought a few slides with you. So I'm getting ready for a good exchange here. So Peter, let's get directly to the points. The recent pipeline setbacks were tough. In light of these events, how are you looking at the growth prospects of the health care business.

Yes. Well, thank you, Constantin, and good morning to everybody in the room. And of course, all the people connected digitally to this event. To your question, obviously, Constantin, it was tough. Let's not put too much shadow around that. But it's clear that not only tough for us, but also obviously for health care professional caregivers and last but not least, for patients. And it also a reminder for us that even if you have a strong proof of concept and you go with confidence in that Phase III, that it's still part of innovation. It's still part of R&D that indeed a Phase III can fail even with a strong proof of concept. Especially, of course, when you look at certain heterogeneous diseases when you look at first-in-class assets versus potential best-in-class asset without precedented biology and so on and so forth. Actually, when you look at general POSs in our industry. You take, for example, small molecules in solid tumors, even with a positive POC, your probability of a positive Phase III readout is actually only a little bit higher than 50%. Now the good news is that even with those setbacks, and you can see that on the slide, and as also mentioned earlier by Belen, we do continue to see slight growth for health care moving forward in the midterm. And that really illustrates the unique blend of portfolio that we have between our more mature products and the more innovative products. They really complement each other very, very nicely. So we're not really exposed to a kind of a patent cliff and we'll comment a little bit later on that. Even if, of course, we are knowledgeable on the fact that there are some increasing headwinds for that, let's say, latest launch portfolio. Actually, I would dare to say that fertility and CM&E, they are not just resilient, they're actually providing growth. So it's a really solid base for adding innovation to that very solid platform, which is the more established products. And it's all about leveraging our global footprint. It's all about leveraging our commercial excellence and our commercial presence. Now obviously, let's not be mistaken about that. Yes, of course, we need innovation, yes, as mentioned by our life science colleagues for really sustainable long-term growth. And in the slide behind, you see when you look at it at a more long-term perspective, that we do expect that our pipeline derisked that the 20% PTRS, yes, that's what you see here, will indeed continue to reach mid -- long-term, that mid-single-digit growth again? So we have a couple of great assets in our pipeline like enpatoran, but also more derisked external innovation. And we have a couple of interesting assets there with pimicotinib and TGCT and cladribine capsules in generalized myasthenia gravis. I would also dare to say that over the last 2 years or so, we have really started to work in the direction of a more derisked pipeline. We had a lot of first-in-class and difficult-to-treat diseases, a couple of years ago, and you see increasing number of proof points that we try to steer that portfolio into a more balanced risk reward type of balance. And we will continue to do more of that in the future.

Right, Peter, there were quite a lot of points. So let's get through them one by one. You touched on the established franchises. So that is CM&E and fertility. What is it that makes them not just resilient but even growing?

Well, it's really a very unique and a kind of diversified portfolio within. Let me start with CM&E, and you see a rather busy slide, but let me help you walk in through that slide. The first thing is, and that's probably the most important thing is that 80% of our portfolio in CM&E is actually in developing markets. And we're talking about a portfolio of nearly EUR 3 billion here, right? So it is kind of a wonderful geographic diversification, but also within the CM&E with different TAs within so kind of a diversification within health care. So we are there operating in markets where local presence really has a strong impact. And also typically where there is still huge degrees of under diagnosis in many of these diseases. Let me give you two examples. You see Euthyrox on that slide. So we are by far market leader, if we exclude Japan and the U.S., so with 48% market share with Euthyrox. So every market expansion, we will benefit to a large extent of any market extension in that field. In many of these developing markets, more than 50% of patients with hypothyroid diseases are still undiagnosed, and therefore untreated today. So you see that there is a significant opportunity there and we can also discuss this more in detail into the breakout session of this afternoon. Another example is Glucophage, which is still the most important product within that CM&E portfolio. And it is expected in those developing markets, that's the incidence or the prevalence of diabetes will continue to grow by another 20% between now and 2030. So significant volume uptick. And of course, you know that Glucophage metformin remains a cornerstone of the early treatment in diabetes type 2. And actually, of course, there is a lot of competition there. But what we also try to do and we do it successfully is to migrate into the prediabetes space. So that's a little bit our blue ocean strategy, if you will, for Glucophage and it's working really, really well. So we have a 70 countries where we have now the license of prediabetes for Glucophage.

Yes, Peter, the -- and I'm aware there's still an electronic session to follow. So to conclude on the established franchises, let's have a brief really look on the fertility franchise.

Try to be crisp, I don't worry. We see actually a very common denominator here across the countries in the world. So yes, birth rates are declining. So you could say this is potentially a headwind. But it's also a big, big, big concern for the economies of these countries. The second point, and that's the most important point, there is a definitely growing degree of infertility. We see we see the cycles going up in many countries. And this is essentially driven by delayed parenthood and also some lifestyle changes. So in light of these challenges, we see many governments also coming with increasing support to support IVF procedures. I was in South Korea the other day and actually infertility or, let's say, decrease in birth rates, lowest birth rate in the world, 0.73 has been declared a national emergency by the South Korean government. And we see immediately that accompanying support to better support patients to get IVF treatments immediately results in increasing cycle. So it was interesting to see that. We also believe that we have the largest portfolio of the infertility companies. We are a market leader with Gonal-f, as you know, in the FSH segment. We are the only company with Pergoveris to have a recombinant FSH plus LH combination. So that is one very good example of life cycle management within our more established portfolio. And I don't know if you know this, and we're very proud of that at Merck. We estimate that we have now around about 5 million babies in the world that were born with the help of our fertility products. So we're very, very proud of that. So in reality, we're very confident in the continued outlook for this fertility business. And one proof point actually is that we're also working on an expansion for the capacity.

So pretty clear. Thanks, Peter. Now let's turn to the innovative franchises. How do they contribute to growth in the midterm?

Well, Belen touched upon it, right? I mean if you look at the last 5 years, our so-called recent launches, actually, they have contributed 70% of the growth of Merck Healthcare in the last 5 years. So there is no way out. If you want to have a sustainably growing company, you need innovation. So let's start first with the commercialized products in the innovation franchise. So let me start with Erbitux. It's an amazing story. It's an incredible story. If you look at the core indications, which are head and neck and colorectal cancer, there are today more than 200 active trials with Erbitux, of which 20 actually are studies with registrational intent. So where Erbitux typically access the backbone. And so it shows how interesting cetuximab Erbitux has become in many of those tumor types. So we do believe, thanks to that very strong backbone that Erbitux will continue to contribute to our growth. Switching to Bavencio. Obviously, we have been enjoying a very strong double-digit growth over the last couple of years. but we're also not naive. Yes, of course, you are aware that there is increasing competition. And we do see, of course, the growth of Bavencio maturing over the midterm. This being said, and we can also discuss this in more detail in the breakout session. We do believe that for many patient segments actually, and many doctors confirm that to us that the superior safety profile of chemotherapy followed by Bavencio is really opening perspective also for Bavencio, and we are confident that we will remain an important player in the bladder cancer space. Now turning to N&I obviously, a bit of a mixed bag with Rebif and Mavenclad. But if you look at the strong growth of Mavenclad in the last couple of years, it's actually, again, a tribute to the commercial execution capabilities we have at Merck Healthcare. We project the kind of a staggering -- staggered decline midterm. And you know that actually the LOE timing is different. So we first have the U.S. in the second half of 2026. And then in Europe, it's kind of starting in '27 in some countries. And then we have countries with [ SPCs ] where we see then the LOE occurring rather in 2030. So it's not really a patent cliff. It's more a patent slope with a gradual decline of Mavenclad.

Thanks, Peter. So then thinking long-term, where do you expect the growth to come from? And in addition, what's different now to maybe a year ago?

Yes. Well, if you compare it to last year, you see actually some pipeline progress in, what I would say, more derisked areas. And we will continue to drive that portfolio in that direction where we have a kind of a more balanced risk reward profile. Let me give you an example here, which is the refreshed N&I approach. So we have a program, as you know, to develop cladribine capsules in myasthenia gravis. It's a very well-characterized molecule, obviously, which we know extremely well. We have been allowed by FDA and EMA to go straight into Phase III with this molecule. And you also know that myasthenia gravis is actually a disease that is very well understood from the biology perspective. If you look at the success rates of Phase III, it's very high success rates and the endpoint, which is very well characterized as regulatory approval endpoint, only takes to 24 weeks to do the study. So that gives you a bit of a flavor of how we're trying to derisk our portfolio. But also in the mid-stage, we do continue to lower the risks. And I can announce you scoop now is that I'm very happy to share that for enpatoran, we have now a very strong and unambiguous proof of concept in cutaneous lupus. So I'm referring here to the Cohort A of the WILLOW study. You know that there is Cohort B that pass futility last year. And there, we will have the readout early next year. So we have very good news on the cutaneous lupus cohort. So that's really interesting.

So that's great news. And what about oncology?

Well, if you look at the slides, I think another good proof point of that derisking strategy is pimicotinib. So -- and actually, there, you have a derisking on the biology because the mode of action is precedented. But also on the part partnering. So the way we constructed the contract with Abbisko is also part of the derisking because as you may remember, it's an option deal for ex-China, and it's straight deal for China. So I think that derisking doesn't mean that we can't be bold anymore. And I think that if you look at the early oncology pipeline, there, of course, we have still a couple of first-in-class endeavors with, of course, inherently higher risk. But even in there, if you think about the PARP1 deal that we did with Henry, of course, we know that PARPs work. It's a precedented mode of action. Challenge being the fact that they are not selective. Now we have a selective PARP1. So the promise is there that we can combine the efficacy of PARP1 with better combinability because more selective, therefore, less toxicity, therefore, a larger therapeutic window to combine. So that's another example, even in those earlier stages of our portfolio that we also think about how we can increase probability of success. Now on the ADCs, you remember that in the R&D update call earlier this year, that was actually central to the R&D update call. And we intend actually to follow our lead, the Anti-CEACAM5, so M9140 with one other molecule this year and then up to 4 new ADCs in the next 3 years. And of course, by doing that, we're also spreading the risk. We see how the studies read out, and we will pick the winners there. So to sum it up, I think we have a pretty solid early-stage pipeline and some fairly advanced relatively derisked asset in a later stage.

So how does external innovation fit into this picture?

Well, I think Elaine and Belen mentioned it, it's clear that if we want to return to long-term and sustainable mid-single-digit growth or even beyond, we need to support that internal growth by external innovation. So reinforcing the pipeline by adding more assets but also, again, in a smart way to get to that good balance between risk and reward is part of the journey. And then from a criteria perspective, what we want to do is, of course, to continue to look for opportunities within our strongholds, but also looking at potential adjacencies where there is high unmet medical need, perhaps a little bit less competitive intensity where there is pricing potential and also a relatively concentrated and focused go-to-market model. We continue to aim minimum 50% of our innovation engine coming from the outside.

Well, Peter, thank you so much for sharing all these aspects and that, I think, in record time. Any closing remarks?

Well, I think I would leave you with these four points on the slide here. First of all, we have a unique and a very resilient and diversified portfolio within health care, #1. Number two, we have a proven track record in commercial execution. I think that's very important, both for mature brands, but also we have proven to be successful with our launches. Number three, you can expect us to drive innovation by leverage both internal and external innovation. And then #4, we will continue to derisk the pharma pipeline. And with the combination of these 4 elements, I think we are really well set up for future success.

Well, Peter, thank you so much for your time and the insight into the health care strategy. Thank you. So following this Spotlight Session Healthcare, I'm delighted to invite Kai Beckmann and the Electronics team on stage. Please join me. So please let me introduce first speakers of this session. We have Kai Beckmann, member of the Executive Board and CEO of Electronics; John Langan, Chief Technology Officer; and Georgina Janvier, Head of Strategic Projects and Public affairs. Good to have you here. And let's directly kick it off, Kai. Electronics undergone an incredible transformation on your watch as both an Executive Board member of Merck and the CEO of Electronics. So I have to say the business is quite unrecognizable from when I joined over 10 years ago. How have you got there? How have you got here? What is behind that significant upgrades to the midterm ambition?

Yes, Constantin, before I start, first of all, it's great to see all of you. I'm really excited and Peter, I could have listened for even longer. So how can we compete with enabling people having babies. So that's such a great story and as we say in German, the dogs bite the last one. So that's the way typically on the timeline. But Constantin, to pick up your question. So I think on this chart, you see the journey that we had over the past 10 years, and I think it's important that we are now in the middle of an industry which is pretty exciting as an absolutely integral partner to the leading edge -- to a leading-edge company in this industry. And this is the company with a broad portfolio across all different dimensions of what's needed to make a semiconductor and all the related solutions to that. And we did the math. This is more of fun fact maybe to take home. We did the math on all our different contributions we make to this industry and we calculate it. So what's the probability that we would be in any electronic device that you can find in retail. So from a TV to a smartphone, from a washing machine to a computer or even to a car. And mobility is over 99% that we will be involved in some steps at somewhere to make this whole device work. I think it's a pretty exciting data point and it shows that the portfolio is pretty extensive. We have actively transformed the sector over the past years. And we had a conscious decision to focus on high-value products with a broad industry development. So not to have like a one-trick pony, it's a pony that can tons of tricks, probably it's a full -- bunch of ponies that we have here. And so we have decided to focus ultrasharp on the electronics industry. And of course, a lot of that was inorganic. As you can see on the chart. We started from scratch 10 years ago with just over 10 years ago, 5 months over 10 years ago with AZ Electronics. And then have sped up the process with Versum and Intermolecular in the later stage. And that made us a very strong strategic partner with the kind of the focus on the semiconductor world. So meanwhile, if you take the core business, as we recall the business with our Surface Solutions of the core, it's 80% focused on semiconductor industry. And so the cost projection that we made is midterm for semiconductor, it's 7% to 11%. So there's a notch upgrade to that because of the focus of our portfolio on leading edge -- leading-edge technology need for AI. And this is then driving the sector growth to 5% to 9% and maybe to take the question from earlier. We're not choosing the easy way. This is trough to trough or peak to peak. So we're not taking advantage of any recovery. This is a typical trough to trough or peak to peak curve. However, it's a CAGR. It's not a corridor. So it's always important in a cyclical business. If it's a corridor, it's getting tough. So it's a CAGR. That's always important to note. First is clear. Customers say we are entering the age of materials that makes us excited. And I think in summary, there is no way to drive further digitization without getting us somewhere involved. And the biggest driver of all is what we all experience with artificial intelligence. That's the biggest driver that kind of keeps us busy.

Well, I think you've just said what is on everyone's mind, and that is AI. And so what does this actually mean for Merck? And how does the semiconductor industry playing that at a [ materials ] level. And what is Merck's role?

Thanks, Constantin. I'm going to take this one. Well, first and foremost, Merck's role is absolutely critical. We're critical to help AI become possible. And AI is only possible because of the huge developments that have been made in the semiconductor industry. AI drives huge complexity within this industry. We need more processing power. We need smaller, smarter, faster, more energy-efficient chips. And what's really great for us, as Kai just mentioned, the customer has said it's the age of materials and this complexity needs us. Complexity is good for Merck. So to make AI happen, we have a few areas that we kind of focus on as an industry. And the first one is miniaturization. So we want to get small as much stuff as we can in a small space. We want to go vertical. And then we want to package chips together in a system, which is called by the industry, heterogeneous integration. And all of this together, we at Merck have kind of coined a phrase called 3D densification. So let's unpack this a little together. Let's look at the first one, miniaturization. So here, as I said, it's about getting as much as we can into a small space. And when you can't go any smaller, when we get to 1 atom or 2 atoms thick, then it's like engineering the performance of that material so you can get more out of it. So Merck's technology has been so helpful in this as the years have gone by. And this is very, very clear from our Thin-Film portfolio. I was just speaking to the head of our Thin-Film division, and we were just chatting about some customer problems. And at the end of it, we realized like we have undisputed technology leadership, and It's just so lovely to sit here and be able to say we have undisputed technology leadership, but it's proven by 275 patent families, a product portfolio of over 100 different materials and technology leadership in dielectrics and metallics. I mean, I know I haven't looked at John too much, but I know that John is probably wearing to tell you some innovation examples. So go on, John, tell us about miniaturization.

Yes. So it is miniaturization that's driving the capabilities of the chip that's fueling AI, right? And as Georgina mentioned, when you say miniaturization, we're talking at the atom level, right? So materials we had before, insulators, conductors no longer perform adequate function at these scales. So we need new materials. If we look at memory, it's been clear for years as the DRAM storage capacitor where the bit lives got smaller and smaller. We've had to change those materials from silica or alumina to hafniums, zirconia and alloys and laminates of those materials. Those all require new precursors because at this scale, it's the chemistry that drives the material deposition or processing. Same thing for the metals, the insulators. So we've used tungsten and copper. But at these scales, we're transitioning to things like ruthenium or molybdenum. The difficulty is a lot of the low-hanging fruit has been picked and the materials that we use now are harder to deliver in many cases. In fact, the molybdenum precursors are most commonly solids. And so we have to deliver the solids. So fortunately, we have the containers, we have the delivery system equipment so that we can really deliver a high-quality product to the customer.

Yes. Thanks, John. I mean, as we're kind of saying, at some point, we reach the limit of small. You can't go smaller than the atom kind of thing. So once we've reached the limit of small, then what can we do next? Think about like New York City, you can only expand so far at a certain point in time to get more people in, we've just got to go up. So we've got to start going vertical, building skyscrapers. And what was game changing about skyscrapers is the new construction techniques that we needed. It was the new materials that we needed. We needed glass. We needed steel. Well, the same is kind of true in semiconductors. We need advanced processes and materials to enable aspect ratios of over 40:1. I mean the Burj Khalifa, which is the world's tallest building, has an aspect ratio of 9:1. So we're talking here like stacking 5 Burj Khalifa's on top of each other. I mean, it's kind of mind blowing. And this is what we did in memory. And now we're starting to do this in logic because around 13 years ago, we introduced FinFET transistor architecture. And now we're at the 3-nanometer and 2-nanometer introducing gate-all-around. It's really quite exciting. So John, tell us about that.

Yes. I think one of the key things you hit on for building skyscrapers, we not only needed new materials, we talked about some of them, but we also needed new construction techniques and that's really what's most exciting and challenging for us as we go vertical. In the memory space, we've been there for a while with VNAND technology. But in logic, to make things like FinFETs and gate-all-around, you need new process chemistries. And you need new methodologies, things called atomic layer deposition or atomic layer etching or selective deposition, where, again, we use the chemistry that is our strength and core competency to really drive the architecture that makes these chips vertical and really drives the performance that we need. But that's 2 of them. But the last one is really a novel architecture around heterogeneous integration. Kai, I know this is something you are passionate about or most excited about.

Absolutely. I think the explanation is Moore's Law is coming to an end. We're hearing that since 35 years, by the way. So it's every few years, it comes up, Moore's Law is at the end, and that's always a way out. And that's called now heterogeneous integration as the next frontier. And maybe to borrow one from Karen, it's a bit -- the heterogeneous integration looks a bit like ADCs. So you got that kind of the antibody, you got a linker, you got a payload and you kind of work the whole thing together. And it's much more complex than just doing one of these at a time. This is what we would call heterogeneous integration. And maybe let's get a bit deeper into what does it mean kind of from a technology point of view, John?

Yes. For the longest time, we were trying to put all of this functionality together in one system. And that has driven miniaturization. But now what we see is if we're really going to go vertical, if we're going to try and put memory and computing as close as possible, that really lights up AI, then we now have the flexibility to make specific components of the chips individually and then bond them together at an atomic layer so they then act as a single chip again. And so this is really a very enabling game-changing methodology, but it's something that's just emerging, and we're seeing lots of development, lots of materials required to make that happen.

So clearly, complexity is good for Merck. I understand that AI is a strong driver of growth in our Semiconductor business. And in that first slide, I also saw you returning to growth in Display. What is it that's driving our Display business?

Yes. I think I'd like to address that because I think it's around innovation and technical excellence and capabilities. I think we saw where the core historical business around liquid crystal still has some very exciting high-end applications that require leveraging all this expertise. And actually, what I've appreciated since I've been part of Merck since the Versum acquisition is really the deep technical expertise we have in that area and things like organic chemistry and light management materials, which really require -- are required to keep the most advanced display applications for LC, for OLED materials. There are certain key layers in there that we have really world-leading expertise in to make the devices brighter to last longer. We're actually bringing together our Thin-Films technology to develop encapsulation materials for OLED. So really limiting, but the thing that really gets me excited about the future of the Display business is around augmented reality, where increasingly, we're going to see form factors that are just much more capable and enable, but they're going to require new materials, new materials platforms. A lot of those materials are based on our liquid crystal expertise, but there are things like reactive mesogens, which are polymerizable materials that make really the critical waveguides that bring the light from the engine to your eye. And so I think there's a lot of opportunities there.

I mean, John, I'm incredibly excited. I am personally ready to throw away the cell phone, put on the glasses and live with my head up for a while. Hopefully, it will help my neck. But you said a lot of things there, John, and just to kind of like break it down in a way that I understand it's like the reactive mesogen is the organic chemistry, the waveguide is the optics, then you've got our semi material expertise, you've got our material sets and you kind of package this all together and boom, you've got something really exciting. And it's really a full portfolio play. I'm very happy and really strategically interested in seeing. It's a true convergence of what we've had and the beauty of what we've got in this Display business and then also our semiconductor expertise. You can even strategically take this technology further into optical interconnects. I don't know about you all, but like some of you have in your house, you've had optical Internet fiber, you've been upgraded. And then you've got smarter, faster, better Internet. I have not. But for those lucky ones who do, this is great. And now we need to start applying that even further. You need to start thinking about the fact that this is in your data centers already. And now on the chip level at the chip, we're transferring so much data that we're going to need optical interconnects there, too. If you think about it, a GPU today computes faster than data can transfer, okay? So that's like a huge waste. If you think, it's like having a supercomputer in your house that you can't even use yet. So this is a strategic opportunity I'm very excited about. It brings everything together to new product offerings.

Right. I think it is something that will play to our strengths because of our history in light management materials, because of our history in semiconductor materials. It's going to require the full breadth of our portfolio in terms of materials, in terms of equipment for delivering and processing those materials. And then to characterize it, we're going to need metrology so we can measure what's happening. And then these are different systems that will have to be put together once again by heterogeneous integration.

Okay. But didn't we just hear about heterogeneous integration semiconductor? So are we coming full circle to AI again? So tell me, Kai, what does AI mean for growth? And when will I see this on my phone?

I think like Belen has shared earlier, so still the share of AI in the overall semiconductor space in terms of volume is still extremely low. We talked about 0.1% in terms of volume, while value we are ranging it in the 10% range. So there is still opportunity that is quite substantially ahead of us. I think that's always important to understand looking at AI. The next frontier for AI is what we call AI at the edge. So currently, AI is a data center, learning these large language models, training efforts there. AI at the edge means it's sitting on your phone and does influence on your phone on these large language models. That is the next frontier. It means the proliferation of AI-enabled semiconductors will be much, much higher than in future. That's the next frontier. So -- and why are we in that space? Thin-Films, we already discussed about that, but all across the different portfolio elements. And again, just be reminded that in terms of growth, bear in mind that the advanced nodes in the industry, they grow mid-teens on the long run, while the mature technologies grow only in the range of mid-single-digit. So that's the advantage of our portfolio is taking a benefit from the share of advanced node technologies. Very important to bear that in mind once we look into that. So maybe Georgina, you can explain why is it so important?

I mean, AI is super important, but it's not without its challenges. If you imagine, we also need to bring -- for the future of AI to happen, we need to bring the cost of computing down first as much as possible. And like how can we do that? Basically, we need to support our customers with yield optimization. So anything we can do to increase yield, increases productivity, increases profitability. So we need to systematically kind of optimize for yield to win. This needs collaboration, right, John, it needs close customer intimacy.

It does. So I hate to admit it, I've been in the industry 36 years. And from the day 1, we've been talking about yield, right, because it's been this journey of miniaturization, right? But today, the stakes are so much higher to make an advanced AI chip requires 1,000 process steps, right? And we're putting things down at the atomic layer. So the materials that we provide have to be ready to meet that challenge day in and day out. So we have to identify what materials we need. We have to provide them with higher quality sooner. And we have to really enable our customers to ramp their processes because when our customers ramp the processes, when they hit that high-volume yield, that's where we can also enjoy the benefit of that going forward. So clearly, it's a challenge. How can we help our customers? I talked about product quality. It's also about those new processes that we're talking about. instead of patterning and etching and filling back in, if we can do selective deposition where we, in one step, put the material where we need versus 4, 5 or 6 steps, we can reduce the yield overall. And really, I think the final way is to leverage our broad product portfolio. We talked about it. We provide the materials. We provide the equipment to deliver the materials. And with our pending acquisition of Unity SC, we're now really expanding our capabilities in metrology because if you can't measure it, you can't fix it. So by having that full set of capabilities, I think we're going to bring a much more comprehensive solution. And then we talked about leveraging AI and data. So when we get the data from our customers, when we combine it with our data together, I think we can bring some really very comprehensive solutions to this problem. So with that, Kai, I think maybe you could finish by giving us a few kind of key perspectives from your vantage point?

Absolutely. So I think this slide is one of my favorites, and it brings together all the different aspects we have just shared with you on the different parts of our portfolio spanning across different needs of the industry. So there is a layer of what we call horizontal integration, so spanning across all process steps of our customers with different material sets. And there's a vertical integration offering for one given problem, the required equipment, the required services and required materials. And we even expanded into some instruments in the metrology space. And if you take both together, we land in the upper right-hand corner. And if you just change the icons and the names on that slide, it is the blueprint of how Life Science was created in the past 25 years. That's exactly how Life Science was created to put all these different things together. So I think since Matthias and the team are driving that, so I can just look across the aisle and I see exactly how it's going, and we can just copycat from there. That's the exact way how we're going to drive progress in the semiconductor industry by helping solving the problems that our customers have across different dimensions horizontally as well as vertically. Very key to have that in mind. And so we have already today all the material areas that we have just been discussing. We have delivery systems. We have services. We have R&D services into molecular. We are now adding pending closing metrology instruments, especially for the most important area of heterogeneous integration. And all of that to help our customers with that product portfolio to solve the challenges of artificial intelligence and to make that next -- these next steps happen. Thank you.

Well, thank you very much for these valuable insights. Thank you to the Electronics teams. Thank you. And thanks a lot also for your questions during the whole morning and also for your attention. Now just a few words on what's coming next. At 12:30, so pretty soon, we start with our ESG lunch session. This session will be webcasted as well. So for our guests on site who registered for the ESG lunch, please stay in the room where lunch will be provided and learn more about Merck's sustainability efforts from the ESG specialists that we have here. So for those of you who did not register for the ESG session, please follow us to the other side of the street for an informal lunch. Again, thanks a lot for your attention, your interest in Merck. We will reunite both groups on site after lunch. And after the afternoon sessions, we'll start at half past 1. Thank you. [Break]

So hello again. A very warm welcome to our 2024 ESG session online and on site. My name is Eva Sterzel. I'm in the Investor Relations team and responsible for sustainability and corporate governance questions. You learned already from Belen this morning that sustainability is really important for Merck because of two aspects. One aspect is to reduce our negative impact on environment and social and increase our positive impact. The second aspect is our customers. So our customers are increasingly requesting sustainable products. We have a broad portfolio in the meanwhile. You also learned that from Belen this morning and we'll learn more in the next session. And those products will help our customers to be more sustainable, offering more sustainable services. And on the other hand, we are also improving our footprint. We deliver to our customers. But I have a bunch of specialists here who are able to talk about that much better. So I will directly hand over to those, starting with Petra Wicklandt, our Head of Sustainability.

Hello. At the beginning of our sustainability session, I would like to bring to your mind our sustainability strategy. The strategy is not new. It was developed in 2020, but it underwent a systematic review. The outcome was that we confirmed the 3 important pillars. So what you can see is that we still have the same focus areas. However, there are some minor changes. We have now give more focus on the integration of sustainability into the business. Also, we -- you will see under Pillar #2, a stronger focus on social aspects of sustainability. And we also include important projects on circular economy, animal welfare and biodiversity as these are also very material and strategic topics for us. In the first pillar, the first pillar is really dedicated to our products. We want to achieve human progress with our products. And you see we have here 2 focus areas, sustainable innovations and technologies for our customers and also creating a positive impact on health and well-being of our patients. In the second pillar, we focus on people and processes. Until 2030, we will fully integrate sustainability into our value chain. Sustainability will be integrated in all our working processes and decision-making processes, for example, in HR processes as well as in investment decisions. The next topic is that we are focusing on providing a diverse and inclusive environment to our people and our communities. And very important is also a sustainable and transparent supply chain. And the last pillar is then fully focusing on planet. We have committed ourselves to climate neutrality until 2040. Merck has also signed a science-based target, a short-term target until 2030. And we also focus on water and resource intensity. And that brings me to the next slide. You see here that we have agreed and also communicated 2 new targets, water and waste. The previous targets had been reached ahead of time. So we now designed new targets and one is the water intensity target. It is now related to our net sales and not anymore to working hours. The waste goal now also includes circularity, which is a very important topic for us. And the exact target is now for water that we want to improve the ratio of water intake by 50% until 2030. And for circularity, we want to reach a 70% circularity rate until 2030. I also would like to give you 3 examples from each of those 3 pillars on our significant achievements. The first one is we are very proud that we have meanwhile crossed really the 2 billion donated tablets of praziquantel. Here, we want to eliminate schistosomiasis, a tropical disease, and these tablets are donated in the endemic countries. And the second example, and you will hear more about this is what we have achieved in terms of gender parity. We have meanwhile reached 39% of women in leadership positions. The last one we are also very proud about, we managed to reduce our Scope 1 and 2 emissions by 30% since 2020. And last but not least, I also would like to mention that we are well on track with the implementation of the Corporate Sustainability Reporting Directive. In spring, we finalized already our materiality analysis according to the new regulation. And we are making really good progress with our so-called Sustainable Data initiative. Here, we are developing a new digital data infrastructure that will help us not only this year, but also in the coming years with an automated and high-quality nonfinancial reporting. In the next report, in March 2025, it's the first time that we will report according to CSRD. And with this, I hand over to my colleague, Jean Enno, who will talk about ethics and governance and operations.

Thank you. So hello, everybody. So I'm leading our in-house consultancy, you can call it for ethics questions in the digital and in the biomedical space. And it may not be the sexiest topic, but I can show you sort of like how we really make an impact with this, not just in reducing risk, but also really helping to position especially our digital products in the market and giving us a competitive advantage. So for us, it's -- what we do is about responsible innovation because breakthrough innovations as we do them in any kind of fields in our company as an innovator, they often enter new unregulated fields. And the question is how do we develop these new things responsibly? How do we do the right thing before we really know what the right thing is to do. And why do we want to do this? Because this is for us here to foster long-term sustainable business success. It's just not thinking of the next quarter or next few years, but in this company, the long term. And as a leading innovator in science and tech, obviously, we have many of these innovations that we bring to the market, and we have developed ways to address these kind of questions that they rise in research and development, but also in our businesses. And Yes, I would like to show you a little bit what we've been doing in the last 14 years because we've really advanced the governance and transparency in this field, and we've become a cross-industry leader, especially in how do we actually get this into the processes and make the right decisions. And it means it's a little bit shown on the bottom. You can see it's okay, we really want to have these trustful relationships with sort of like our customers, partners towards society and obviously, also towards our shareholders. And that's why we do all this. So obviously, we have this kind of in-house consultancy. We actually work with world-leading external advisers, academic advisers that help us here to find the best solutions, and we have developed ways for risk assessment and then beyond that, obviously, also policy and trainings and awareness. And so how do we do this? How do we bring this in the governance? So actually, most of this started in our Health Care business almost 15 years ago, looking, okay, how can we do biomedical innovations responsibly, and we got a group of experts together, external experts that helped us in responsible innovation. And over the years, these questions become more complex. Actually, Life Science came into play, with the Sigma-Aldrich acquisition, we have a lot of new technologies and questions. And we realized we need a dedicated team, the team that I'm leading now are built up over the last 5 years that is really answering these kind of questions. And so we do this together with the institution we founded, the Merck Ethics Advisory Panel for Science and Technology. And then since 2020, also since the advancements of data and AI, the Digital Ethics Advisory Panel. And what are these and how do they work? So you can see a little bit of a depiction. So usually, the business comes with the questions to our office. Then we have a look, okay, is this a question? Can we answer with the in-house expertise we have built up through the recent years or do we bring this to our experts and then the experts give us advice to the business, and it does not stop here. It's sort of like a continued circle. So look at the advisers we have here, you can Google them. They're all stars in their field. I'm just going to highlight one. John Halamka, he is the ex-CIO of Harvard and personal adviser to Joe Biden during the 2020 election campaign for health care. So you can see important people. And they only do this because they see they have an impact. If they would just be show docs, they would have already left this kind of panel. So this is an example. And now I'm just going to do a little bit that sets us most apart from other companies. This is really responsible handling of data and AI because obviously, you can see that in the last years, this has really gotten a focus. And for us, it's really the trust that we need to create with our customers and partners to actually be successful in this field because without the trust, for example, think of digital health, you will never be able to market these solutions. And here, we can really draw on years of experience, in bioethics and transfer these actually to digital ethics, and you see many things I listed on here, and I'm happy to answer any questions on them. But just to see, we really took them and implemented them into processes and tools that really detect risks and critical things early on. Why we do this? Because actually in business integrations, this often makes us the partner of choice in a highly competitive environment. We cannot out-tech big tech or out-resource big tech. But actually, I'm just coming back from 2 days in Singapore, where I was part with the business of the discussions with the Ministry of Health, whether they want to use one of our new technologies. And you can see in this field, they'd rather work with somebody like us than with one of the big tech players because here, they see, okay, you have these structures in place. You have been doing this for many years and you want to do this responsibly. We'd rather do it with you than with one of the big tech players. And just to summarize it, I mean, all of we have been doing and we received quite some awards and also good ratings for specialized ratings for how do we deal with AI, but we have also quite some peer-review publications seeing that we got quite some praise also even from the very critical academic field on this. Thank you. And now I invite my colleague, Renee Connolly on stage.

Thank you so much. So I'm Renee Connolly, Chief Diversity, Equity and Inclusion Officer. Honored to be here on behalf of Belen, the Board as well as our CHRO. I think what you're going to see today is that we're really focusing on our collective contribution to embed DE&I and belonging in all of our business processes as well as all of our HR processes. We're making steady progress, and I would like the message to be it's progress, not perfection as with any area. We do take a global approach to our efforts here, and I think that the progress being made has been validated by some external maturity indexes that we've done as of late. I want to reinforce that we care deeply about our people, but we care deeply about the customers, our patients as well as the communities in which we live and work. And we're really been advancing at a good steady pace, I think, in a moderated fashion that allows us to listen to the employees' needs and the community needs, introduce benefits that are appropriate. One of the numbers that I'm very proud of on this slide is the 100%. We were the first [ DAX ] company to introduce 100% fertility benefit coverage. We've had nearly 500 employees already take care of -- take advantage of this benefit. Being a leader in the Fertility business, this speaks to how our diversity, equity and inclusion efforts also are in line with our business imperative and our strategic goals and objectives as a company. I think health equity is another area, and I'll talk about that in just a minute, is something that we look at. We're not only looking at it from an internal basis, we're also looking at what it requires for us to make sure that people have the access needed to the health equity availability within the world. 39% was already mentioned by Petra. One of the dimensions we look at very closely is women in leadership. We're tracking nicely in the progress here. By 2030, the goal is to reach parity in women in leadership roles. I would like to say that standing as one enterprise is something that we're very committed to here. Although we have 3 business sectors that you've heard much of before, we look at DE&I as a business imperative within the organization. We have expanded since we published this for the first time in 2021, beyond the dimension of just women in leadership, we are also looking at culture and ethnicity, where we're tracking to meet both of those objectives of 30% of the share in leadership for culture and ethnicity in those 2 areas. And on this dimension of inclusivity, we measure 2 major things. One, we have introduced a proprietary inclusive leadership workshop, of which all of our people managers have to go through. That's approximately 10,000 people. We're at 92% and all new people managers and people leaders are -- it's requirement that they go through this. We are proud to say that we'll be introducing in 2025, an inclusive colleagues workshop where all of our employees even on the manufacturing floor as well are going through a workshop to understand how to be an inclusive colleague within the organization. And the last one that I'll mention here is that we're working very deeply on understanding the new generation of inclusive areas that we have to look at that are really important to our business, such as supplier diversity, which is a critical topic that we're working on right now and other areas of health equity and access. I'd like to say in conclusion here that there are many areas I could have realized. We are working with the semi organization in our Electronics area. We are working with the LPA in our Life Science area and other organizations to ensure that we're building an equitable ecosystem, I would say. But health equity is something that you'll hear a little bit more about it later as well in the presentation. And this is something we've committed and doubled down on the clinical trial recruitment, ensuring that our clinical trials are reflective of the communities in which it serves as well as looking at health access. In 2025, we're very proud to say that we will be introducing MyHealth in Motion, which is a literacy availability mobile vehicle that will go to underrepresented communities to ensure information access and understanding. And we continue to do great work in the health equity area of disparities within MS and oncology with fellowships. I think that my takeaway message is our ultimate goal is a sense of belonging that we are moving forward for our employees, for the community, for our shareholders as well as for our patients and customers, of course. And we do this with care, consistency, and we do it intentionally, sustainably and consistently across our business. And with that, I'm going to introduce Jorge.

Thank you. And now I'm going to give you some insights about how we manage sustainability in our supply chains, right? Nowadays, it's not enough for us in procurement to focus only on prices or quality or services. We also expect our suppliers to be responsible in the way they interact with environment too. Constantly, in procurement, we assess our strategies. We also challenge our processes. We improve our systems to be able to detect and prevent violations to ESG standards. This is not always easy. As you know, we operate in 3 different business sectors. We are a global company doing business in more than 140 countries. We have more than 50,000 suppliers. So you can imagine how complex our supply chains are. And yes, managing this complexity really represents a big challenge for us, but we also like to see that as a great opportunity to protect the environment, protect the planet and also the communities in which we operate. We have a lot of initiatives, but I think that I could say that we mainly work in 2 fronts, and they are very much aligned to the corporate strategy that Petra presented a few minutes ago. And here, we focus on making our supply chains more transparent, more sustainable. And 2 points are really paramount for us. The first one is ensuring compliance to loss on regulations related to environment and also related to social responsibility. This is not simple because the scope is growing every year. We dedicated a lot of resources, a lot of time on that, and I think we are doing a very good job there. And the other topic, which is pretty important for us, is respect for human rights. We do respect the human rights of the people working in our supply chains, but we also expect our suppliers and the suppliers of our suppliers to do the same. And for that, we have different mechanisms. And just to name a few of them, we have a Supplier Code of Conduct that we ask our suppliers to acknowledge actively. And we also have some clauses in our contracts where we commit contractually our suppliers to also have a responsible behavior. And then on the other front, we collaborate very closely in the company's objectives of reducing emissions. Of course, we in procurement, we concentrate in emission for our suppliers. And here, we have established together with our colleagues from the business a very solid supplier decarbonization program, and I think we have been doing some good progress there. And, of course, we need to measure how we perform in terms of sustainability. And we have a lot of KPIs, but I wanted to present one to you today. It is called the Sustainability KPI within Merck. This is a public KPI that you will find in our sustainability report, also in our website. And it's very simple, right? So it's -- we define which are our relevant suppliers. Those are suppliers that amount to a big portion of our spend. We put on top -- or we add the suppliers that operate in a risky country or in a risky industry, right? And the objective is to have all the suppliers do an assessment -- sustainability assessment, right? So we mainly use EcoVadis assessment because it measures a lot of dimensions like sustainability practices, human right practices, ethics, sustainable procurement practices, right? And I think we are also in a very good position here. But also important to say that this KPI affects the remuneration of our top management here, right? So -- and I think this is a very important topic as an evidence that our company takes the topic very seriously. And finally, we are always evolving our KPIs. And I just wanted to share with you, we are now evaluating a new KPI called the Sustainability -- Supplier Sustainability Score, which combines the assessments from EcoVadis, plus the decarbonization performance of our suppliers, right? We are still in a phase where we are going to fine-tune it, but we plan to deploy it in '25. And I think this is going to be also a good tool for our sourcing teams then to identify the most sustainable suppliers and also to channel the volume -- our purchasing volume through them, right. And yes, those are some of the initiatives that we work on, and I think they bring us closer to our ambition, which is embedded in sustainability in every decision that we make. And with that, I give the word to my colleague, Harald, who is going to talk about Global Health and Health Equity.

Hello. My name is Harald Nusser. I've joined the company in June this year and as the Head for Global Health and Health Equity. Our company's vision is sparking discovery, elevating humanity, making tomorrow's world a healthier place. So what does that have to do with what we do and how do we define health equity? For us, driving health equity starts with ensuring communities have access to quality care and are provided the conditions they need to achieve their best possible health outcomes. That means that health equity is spanning across the entire value chain, including also enabling functions. And what we do here is we address the material topics, and those who have, of course, seen in similar presentations before, like availability, accessibility, affordability, the famous triple or quadruple As. And of course, the material topic of a health care-oriented company on innovation and patient safety. These are risk mitigation components on one hand. But on the other hand, we also want to do what's the right thing to do, creating value for our business and value to society. Because with that, we also tick the box of another material topic, which is talent attraction and retention. And we particularly, on the right side, with our community engagement focus on multilateral partnerships or public private partnerships. That's an eye chart. I'm aware of that. What I want to show with that slide is that we are collaborating in partnership with governments, with nongovernmental organizations, with civil society, academia and donors, and last but not least, other private sector organizations. We collaborate in order to increase innovation output with product development partnerships and consortia with different organizations. For example, to develop a pediatric, better-suited formulation of our schistosomiasis treatment that we already have on the market. We also risk mitigate through derisking development through co-funding and product development partnerships as well. And we generate value, especially societal value, with our partnerships on the global coordination and stewardship committee, for example, where WHO plays an important role and where we make sure that including the donors, we increase transparency and accountability of products moving on downstream once they have reached the countries so that communities who should benefit from those products are adequately reached. More concretely, that means -- and you will be well aware of our schistosomiasis program, which focuses on morbidity control and selective countries' elimination efforts. On the left side, you see regarding our portfolio, we have WHO prequalification for the existing treatment, of course, and we have developed a new formulation with less bitter taste to treat school age children as well as adults. We have a new pediatric development where we soon have the first preschooler on treatment, where we, for the next 2 years, will focus on learning more about the implementation and what's really needed to make that a successful intervention. We are in the middle of a technology transfer to a local sub-Saharan African drug product -- production organization in Kenya. And we are looking into complementing the portfolio from a research and development perspective as well with a follow-up candidate. When it comes to the right side, it is important to also engage alongside the product, and that is with capacity strengthening efforts with making sure that we reach the people who are most affected by that and not just have boil-the-ocean approach, so to speak. And eventually, we want to complement our donation program with a not-for-profit sustainable access-to-medicine model, allowing for further scalability. Thank you very much. And with that, I hand over to Jeffrey Whitford.

Hello, everyone. It's good to be back. And what I'm really excited to talk about is the continued progress that we're making in Life Science, about transforming our portfolio. With 300,000 products, it is an epic challenge, but one that we really see interest from our customers to help understand how the materials they are going to use help reduce their Scope 3 footprint. This helps really reinforce it into our business. One of the examples that we've been talking about for some time is solvents in particular. This makes up about 10% of our purchased goods and services, Scope 3.1 framework. So solvents typically made up of fossil fuels, right? That's one of the critical raw materials. We're trying to rethink what that means and how can we use bio-based materials, specifically waste, right? It becomes a very interesting feedstock that can transform and use materials that otherwise would be disposed of. And in this case, we take the waste from the whiskey manufacturing process, so pot ale draft, and that becomes the starting feedstock. It's injected with enzymes, that then ferment. And then through that process, we come out with the bio-based options. The great thing about these bio-based options is not only are we increasing circularity, but we're also delivering on reduction of CO2 footprint and we're doing this with drop-in materials, right? So we're taking into account hazard risk but also sustainability. And with this, you can see those numbers delivering significant CO2 reductions, anywhere from 60-plus percent to 80% reduction. What we need to figure out is how do we continue to scale this, right? And that's where we create market signals. We're working with our customers to create demand that then drives those market signals that investment is needed to expand the production capabilities for these materials so that we're able to bring that within price alignment so that the cost isn't so absorbently different than what customers are used to with the traditional materials. And this is something that we believe there is a path to achieve, and it's not a far-term path, but really near term. Because this is really how we know we're going to make that transition happen from a product standpoint. And this is really where we're focusing in on one aspect of the portfolio that's relevant to our entire customer base to help them move along. That's just one part, and then you go to another interesting part of our portfolio. So our single-use materials that are used for biopharma production are critical to the growth of our organization. This is one of the focus areas that continues to be a growth driver in the long-term future. And for this, we are starting the process of changing the direction of travel for our product development. The Millistak product that you see on screen is the Lighthouse Project. That is the first driver of what the future looks like for our Process Solutions business. As you can see, there's a visual difference between the before and the after. The before is 160 grams of plastic and membrane material. The new version is 40 grams of plastic and membrane material. We also chose different materials that have increased recyclability, which we are pairing together with our work on end-of-life circularity. So once again, we pull all of these elements together, all the while delivering a 230% decrease in global warming potential for the material. These quantifiable figures and how we are embedding this into our product design process are fundamental into shaping and turning the direction that we're headed with product development. But it's one thing for us to just do this, it's another thing for us to connect the dots. And this is really where it becomes, I would say, exciting and interesting for me. I spend at least a day a week with customers, talking to them about how sustainability is creating competitive advantage and helping them deliver on Scope 3 reduction. And we're doing that through a data tool called the Customer Sustainability Dashboard. We have begun the work to product carbon footprint, the entire product portfolio. We have connected our Scope 1 and 2 footprints for everything and have put that into the dashboard. We take our customers' purchasing data and connect those dots to be able to give them the trajectory of reduction that has happened over time. In certain cases, maybe it's increased, but in most cases, their decreases even as their sales may have increased with us, really being able to demonstrate the connection that as your sales grow, your CO2 footprint doesn't have to grow. Because, as Petra said, we as an organization are committed to driving sustainability into how we do everything. And this is really becoming a critical advantage for us in discussions with our customers to be able to provide data to showcase the progress that we're making as an organization. It's a really exciting, I think, tool that's going to give us more opportunities to then commercialize those developments coming out of R&D and connect them more quickly so that we can connect our commercial team members with our customers on these new developments. And with that, I'm going to turn it over to my colleague Miriam from Electronics.

Thanks, Jeffrey. Welcome, everyone. My name is Miriam Tolksdorf, Head of Sustainability and Safety for Merck Electronics. So let's have a look at sustainability focus areas at Merck Electronics. A little bit of context upfront. Because for us, it is important to understand the key levers that advance sustainability in the semiconductor and broader electronics industry, but it's also, of course, important to leverage exactly our key capabilities to activate and to support these levers. In the electronics industry, exciting trends like AI are driving growth technology progress. But of course, they also bring specific sustainability challenges. New more capable materials are needed to create smaller, faster, more efficient chips and all of that ideally with lowest possible energy demand and at lowest possible environmental footprint. Finding suitable candidates for these new materials and then introducing these new and more sustainable materials without any disruption into the typical complex and highly sensitive manufacturing processes of the electronics industry is a key challenge or a tough task. And we have to address that challenge and that task jointly with our business partners. And this is why for us, collaboration and innovation are the key levers to advance sustainability and to drive sustainable product design in electronics. And of course, we are looking into our own operations and on our own environmental footprint in the value chain and that in the context of the broader sustainability strategy and our environmental targets. And across all of these levers, clear focus areas have been defined which we consider currently needle movers to advance digital progress and to advance sustainability in the electronics industry. So let's have a look at a couple of examples. One focus area is the development of new etching gases with lower global warming potential that would allow the reduction of fab emissions in manufacturing processes. Process gases still account for a large portion of emissions from semiconductor manufacturing. And being able to replace the traditional gases with new low GWP as it's called alternatives, has a huge potential to reduce emissions. Scope 1 emissions at our customers, but also our Scope 3 emissions along the value chain. We also prioritize sustainability already in our material or product design. When we adhere to strict criteria in assessing our R&D projects and their sustainability impact by applying our so-called SURE Scorecard, and SURE here stands for sustainability in R&D and electronics. We're currently focusing on the application of the scorecard on all relevant projects. And as you can see, we're quite complete here. But then as a next step, we will have to review the quality of these assessments to make sure that we create a robust basis to identify sustainability-related risks and opportunities in our R&D portfolio. Now AI or new technologies do not only bring new challenges to sustainability. AI also allows us to generate solutions or come to outcomes, much quicker than in the past. And we leverage exactly that opportunity with our internal digital and data capabilities. First examples or projects show that we can quickly and successfully identify process improvements that allow us to optimize for resource consumption, emissions or waste generation. And we look at our own greenhouse gas emissions. You have already heard about Merck's greenhouse gas emission reduction target and progress. And Merck Electronics plays a decisive role in achieving that ambition. We focus on NF3 abatement, and we have established central NF3 abatement capabilities at our relevant sites. And these capabilities allow us to reduce emissions in line with the defined road map for Merck. Now let me come back to the importance of collaboration and partnership in our industry when it comes to sustainable product design or development. You see here just a couple of examples on how we collaborate with our industry partners to advance materials, create more sustainable solutions or leverage new technologies. Joint prioritization and research in multidisciplinary, multi-stakeholder groups are as important as the transparent sharing of data and information, of course, in secure environments because that enables us to optimize beyond individual company boundaries. And it enables us to identify industry solutions along the value chain. So let me conclude with 3 important points. For us, collaboration and innovation are the key levers to advance sustainability and drive sustainable product development. Because the dialogue and the exchange with our partners enables us to co-optimize along the value chain and to address industry challenges together. And data-driven tools support innovation, sustainable innovation because at the end, not only more capable materials, but more sustainable materials are needed to drive sustainable digital progress. Thank you. And with that, I'm handing it over to Andreas.

Thank you, Miriam. My name is Andreas Polomski, Head of Climate Action at Merck, with an update on climate action. We are fully committed to reach our long-term climate goals being climate neutrality in 2040. On that path to underpin, we have set an approved SBTI near-term target by 2030 to reduce our Scope 1 and 2 emissions by 50% in 2030 coming from our baseline here in 2020. We also have set an emission intensity target for Scope 3, reducing the intensity per euro gross profit by 52%. And of course, we are also looking at the green deal and the respective net 0 targets for 2050 here. So -- but where do we stand in our journey, reaching climate neutrality? As you can see here in the graph, we managed to reduce our Scope 1 and 2 emissions by 30% coming from our baseline year 2020, while revenues were growing. Focusing only on Scope 2, we managed to reduce about 18.6% versus the last year, driven, yes, also by slightly reduced production volumes in the Spec Gas area, but mainly due to our just explained efforts in reducing and abating the NF3 footprint, which we have been piloting in the last years, now having full installation units up so that we can expect even further reductions in this area to come. Looking at the Scope 3 reductions, about 6% versus last year, driven by energy efficiency measures, but also by our growing percentage of procuring renewable energy up to 51% now with a target in 2030 to reach at least 80% of that. Scope 3 intensity, also we can report a reduction here. This reduction is driven by using better data to calculate the footprint, so mainly primary data going forward, which is extremely important but of course, also slightly supported by reduced spend. To underpin what has been said before, it is of utmost importance that we also work together with our suppliers to reduce the Scope 3 footprint. And the other element is around our own product, so to speak, we try to get a clear understanding of individual product carbon footprints to even more so be able along the value chain to identify sources of carbon within. Overall, we believe we have set the course to climate neutrality. So also covering the elements around strategy and governance. Here, clearly, right now, we are working in a net 0 climate transition plan, which has been demanded by the CSID requirements, really trying also to enable corporate climate capabilities within the organization and clearly aligning towards corporate strategy. So how do we anchor these elements of targets and measures in the organization? A few years back, we already introduced the so-called shadow price for our investment decisions. So these metrics and this methodology, we are refining step by step as well as we are refining our incentive systems, respectively. So we already have incentives via GHG abatements for the executive compensation, but we are looking at this at a broader field as well. Last but not least, of course, we try to anchor decarbonization and R&D activities. So mainly what has been talked about circular economy here. But we also once more look at the transparency of our existing product portfolio with the carbon footprint, specifically to optimize and this type of methodology, we are also using for future products in R&D to depict where are sources of carbon and lower them as much as we can. Clearly, expanding green energy is a target, which we implement in the organization. And last but not least, especially under Scope 3, it is only able to reduce this jointly together with customers, as Miriam said, and Jeff said, as well as with these suppliers. With that, I'm handing over to Till Langner talking about circular economy. Thank you.

Thank you very much. Now to the probably most complex sustainability challenges of them all, circular economy, with such a diverse portfolio and a global presence becoming more circular is a multilayered long-term endeavor. It's also a very promising endeavor as it decouples economic activity from the consumption of finite resources. A circular economy conserves nonrenewable raw materials and is an essential contribution to increasing resource productivity, saving costs and generating other economic benefits. Transitioning towards the circular economy is also critical to solve for both net 0 emissions, as said before, but also limiting biodiversity loss. However, there is no one-fits-all approach. So circular economy strategies need to be tailor-made in order to match position in the value chain, competitive environment, business model and also address the most relevant impacts. Circular business models can become a solution provider for our global challenges, but the transition will also encompass the whole value chain and require extensive collaborations. So identifying the biggest levers, assessing realistic approaches and required collaborations, prioritizing based on impact and feasibility are all relevant steps towards a more circular business at Merck that we have started to take. So looking at the graph here, you can easily comprehend that, for example, in health care, where our final products are usually consumed, it is essential to focus on upstream opportunities, assess our raw material source, improve production and also the packaging. In electronics, our materials often end up in highly complex end consumer products such as cars and mobile phones. Though not impossible recovering those materials is a global challenge for the worldwide economy. So we approach this challenge with a dedicated corporate strategy as well as with respective sector strategies, all as an integral part of the overall sustainability strategy of the company. Having set ourselves some ambitious waste and water targets, we now detail out the respective sector road maps and respective metrics to measure our progress. So as you have seen in previous presentations, there are already some great examples of how Merck can become more circular, create new business models and opportunities and differentiate from competition with advanced solutions that not only tackle our resource consumption and global footprint, but also those of our customers and patients. So on the right, you can see 3 respective examples, one from each of our business sectors. So we provide bio-based solvents in Life Science generated from renewable resources. In electronics, we take back OLED materials from our customers' display production, recondition it and then sell it to the same customer for the same process. And in health care, we even team up with our competition to enable take-back infrastructure for health care devices such as injection pens. So these are just some selected examples of circular solutions, and all of them demonstrate that often economic and ecologic benefits go hand-in-hand. So we are seeking ways to close the loop across our entire value chain and embed circular economy into every goal of Merck's sustainability strategy, creating shared value for the business and the society. For us, it's a driver of innovation and an essential framework for achieving our sustainability goals. Hence, we are actively promoting sustainable, resource-efficient circle economy through different initiatives. As explained by Belen earlier today, we have developed multiple digital solutions to assess our portfolio and our product pipeline. R&D scorecards that are evaluated under one umbrella on a corporate level, assessing our whole portfolio addressing multiple economy aspects and criteria. And also green speed, as a tool to analyze our resource consumption and improvement potentials in the upscaling phase, allowing researchers to identify the most impactful measures to improving our product footprint. So we have started our journey to make Merck a more circular company. Thank you very much. And with that, I hand back over to Eva.

Yes. Thank you very much to all of the speakers. I think that was a lot of stuff, a lot of insights. But maybe still there are some open questions. So I hope the overload of information did not kill the discussion. For that, I would like to ask all the speakers on stage, please. And the audience will prepare for questions. If you have a question, just raise your hand, push the button, so we can hear you in the room. So are there any questions?

I wanted to ask on the recycling side, specifically of the single bags used in bioprocessing. What happens to those after they get used? Are they at all recyclable? And what can be done to improve the sustainability of that part of the process?

Yes, absolutely. So in the United States in 2015, we introduced the first biopharma recycling program globally. To date, that program has yielded about 11,500 tons of recycled material. So it's a start, but that's mechanical recycling. So what we are working on currently are 2 pilots, 1 happening in the U.K. and 1 happening in Ireland, to address kind of the next phase of recycling. So moving us to advanced and hopefully, longer-term enzymatic recycling. So the good news is the materials are able to be recycled. The challenge is the infrastructure is not developed in all of the places it needs to be. So we're collectively working on a systematic solution with the entire ecosystem to make sure that we can develop that so that the availability to be able to handle the recycling of the single-use bags is more widely available. And pending these pilots that are in starting phases. So we've got some first material that's going to be tested in the coming months, we're going to start to see those next steps. I think there's also an opportunity as we think about the regulatory environment and advocacy in terms of how materials can move, specifically in the EU, in particular, because what you currently need to do is set up those systems on a country-by-country basis. So can we get to a place where those materials can be centralized more effectively so that we can decrease the infrastructure needs, but also get more consistent with being able to get that material back into the product development process. Because ultimately, the goal is to get back to a polymer or monomer that gets put back into the product where we see that come through. The first of that type of product that's going to start to come out from us happens in, I think, the latest Q2 of next year, where we will start trialing that process of having the recycled plastic in the product. And I think that becomes the first marker, once again, creating that market demand to increase the capabilities in infrastructure globally.

Florent Cespedes from Bernstein. Two questions, please. One on access to medicines, could you give a little bit more color about what's your strategy here beyond, let's say, the -- let's say, [indiscernible] or the developing countries diseases, do you give access to your innovative products as well? So that's my first question. My second question is about a greenhouse emission -- greenhouse gas emission. How challenging it is to achieve the ambitious targets in 2030 or even 2040 when you have your business growing and notably on Scope 3, that you have to rely on your customer strategy as well?

To address your first question regarding access to medicines for the innovative medicines, yes, we absolutely do. We look into demonstration programs. We set up specific engagements, public-private partnerships and work selectively to also learn from the engagement. At the same time, it's also important not to overload a less developed health system because sometimes from a population health perspective, there are things which are much more important to do to prevent premature deaths from diarrhea, for example. So it's a trade-off discussion, and we take this very seriously.

Yes. Maybe with respect to Scope 3 emissions, dead-on. This is the biggest challenge of the industry. Clearly, as we are not necessarily in the driving seat, we need to work jointly together. So looking at our current portfolio, we would say that reducing it to a net 0 aspiration is feasible and financially absolutely valuable to do this. So we need to cooperate with our customers. So that's why the focus is on circular economy elements so that whatever we do also talking about these shadow prices, right? So whatever we set in stone right now for locked in carbon, we need to build everything as carbon neutral as possible today. So that's a huge undertaking, but we are trying to put the metrics and steering elements in place so that this is a first off its kind consideration every time.

Any additional questions from the audience?

Thanks very much. It's so encouraging to see so many people behind this initiative with really, really thoughtful -- a really, really thoughtful approach. Would you say Merck is a leader in this approach to sustainability? I mean, obviously, you work with so many different customers. Obviously, there's going to be a huge spectrum. But would you say you're a real leader in driving this? Or do you feel you're on par with your customers and it's very iterative together. Could you give any kind of color to that?

Yes, I can take this. We ask ourselves the same question actually. So what we did is this year a maturity assessment. So we compared ourselves really to other companies in the 3 different sectors. And we are really quite satisfied with the outcome. So I would say in many areas, we are really amongst the leading companies. I would not say we are the leader and much better than anybody else, but we are definitely a leader amongst the leaders. And we are now looking deeply into those areas because we have looked into sustainability according to the CSRD standard. So we looked at every standard how we are doing there. And now we are looking in those where we think here we could improve, and we are calculating what would it cost us to improve in this area. What we have also seen is that actually it always depends when we see external comparison if they compare us with other health care companies because other health care companies are quite advanced, whereas other life science and other electronics companies are less advanced. That is also what we observed.

Can I just add one comment here. Because as you're saying, we're talking to a lot of customers and beyond the internal assessments and I would say, self-critical assessment, that was with a good outcome. It's also encouraging to see that we are approached by our customers because there are a lot of challenges, as I outlined out there. And not in all of the areas, our solutions already available. But we are a trusted partner also for our customers to start identifying solutions, and that for me is very encouraging.

Jeffrey, do you want to add something maybe also on that from your experience in life science?

Yes. I think with the amount of time I spend with customers, it gives me a good pulse and the best feedback we can get. And this happened just a few weeks ago, a customer said you're light years ahead of everyone else. But I think to Petra's point, right, it can vary in certain applications. And I think we are quite hard on ourselves and we are really focusing on raising the bar. So we don't take that and just say everything is fine. I think we continue to say where can we continue to push forward so that we continue separating ourselves. Because I think as we talk about the Scope 3 element, this becomes a significant competitive advantage. And our effectiveness with being able to drive this into the business translates into increased share of wallet. So I think that's really where we're seeing that connection and using that to be, I would say, more aggressive and clear about the value creation for the organization.

So we -- this was very much from the environmental perspective, I would say. Renee, maybe you can add a few words on how we are in compared with other companies on the DE&I topic?

So similar to the discussion we had, we just completed a maturity assessment as well on the DE&I side, also scoring pretty nicely and making good progress. Surely on our culture and ethnicity pipeline work, we have some progress that needs to be made there. That's a gap for us. But some other areas that have really kind of come to the surface is in the area of disability and access for our employees with different abilities. That has been something where we scored very nicely. We're scoring an external surveys and others in a very high regard. And I think another area where we're looking much more closely into spaces like neuro-diversity and what does it take for our employee base to be motivated to come to work. I think it was said earlier and one of the things that we're seeing a nice progress on is embedding it in all of our processes from a talent acquisition perspective. So from retention to attraction, what does it mean generationally and what's the difference is. So we're feeling really good about where we are. But for sure, the work is never done. It's a complex world with 63,000 employees in many different customers and sectors. So we're comparing ourselves across the bases but for sure, on a good trajectory.

To complete the picture?

Yes. So I can just say something, especially on the responsible AI piece and how do we get it out, especially in our products. Actually, so with the work we're publishing and talking about, I get a lot of reach out from partners, from big strategic consultancies that call me personally and asked me how did you do it, but also other industry leaders in Germany, automotive, big technology leaders, they come to us and ask, so how do you do it? We want to learn from you. And actually, next week, we're going to host an event where 11 companies, among them, like Bayer, SAP, Siemens come to us to learn from us, how do we do this and can we exchange best practices to bring us together because we see this as a joint effort, but just to see that we are a little bit leading in this field.

Yes, Richard?

Just on the bioprocess equipment and integrating recycle material, does that affect the quality at all of the material? How many times can you do it with the circularity? I've got a second question as well, but maybe that one first?

This is part of the efficacy studies, right? So there's a lot of testing that needs to go -- needs to happen. And there's going to be validation of that material, specifically also with regulatory bodies because this does then go into the factor of making materials that are treatment therapies, et cetera. So we're at the early stages of that. In certain cases where they're nonhuman contact, right, that's moving forward, and there's already a list of approved materials. So as we go through that, we're working through that process to ensure that we're able to have the regulatory clearance, but as well have all of the efficacy from a material clarity, length of time it can stay in service.

So the very last question and a very short answer, please.

I mean it was just on a competitive advantage. Do you think that this goes in -- you get a benefit like in 5 years and it all comes on? Or do you think it's a gradual competitive advantage in terms of integrating these more circular equipment and carbon footprint?

So the reason why I would say it's more gradual is because it's less about the work that we're doing because we are already pretty far along, but it's really about the maturity of the customers and where they are in their sustainability journey because it's about changes that they're going to functionally make. I just had a conversation on Monday with one of our global strategic customers. And they indicated that if we can provide data on even a macro level about the efficacy from a CO2 standpoint, there's going to be changes starting to happen in their buying behavior. And so it really depends on where the customer is at. Some customers have yet to create a Scope 3 goal. So if you don't have a Scope 3 goal, you're not yet really integrating the solutions that we're bringing to the table. So it really is more on the customer maturity standpoint, but I think the light switches are going to start flipping on pretty quickly just due to requirements from EU regulation.

So thank you very much also for your questions and your interest. The rising interest of investors are really important to us because we need a lobby also within Merck. So thank you very much for that. Thank you to everybody who joined online. We can, any time, continue the discussion. Thanks a lot.