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Dear ladies and gentlemen, welcome to the Merck Investor and Analyst conference call on Fourth Quarter 2020. [Operator Instructions] May I now hand you over to Constantin Fest, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir.
Thank you very much, Diana, and a very warm welcome to this Q4 and Full Year 2020 Earnings Call. My name is Constantin Fest. I'm Head of Investor Relations here at Merck. Please note that presenting today are Stefan Oschmann, our group CEO; and Marcus Kuhnert, our Group CFO; as well as Kai Beckmann, CEO of our Electronics Business Sector previously PM. For a short introduction to the capital markets, Peter Guenter, our new CEO of our Healthcare business sector, is also joining this call and will be available for the Q&A. Please note that Danny Bar-Zohar, our Healthcare Global Head of Development is also available for questions. Lastly, I'm delighted to let you know that Belen Garijo, Vice Chair of the Executive Board and Deputy CEO of Merck, will join us for 1 or 2 minutes. After the presentation for a brief message. With this, we will now guide you through the key slides of this presentation, and I will then be happy -- all of us will then be happy to take all of your questions. Stefan?
Thank you. Thank you, Constantin, and also a warm welcome from my side. Welcome to our full year earnings call. I'm on Slide 4 of the presentation starting with the highlights. 2020 was an unprecedented year in many respects, and it was a successful year for Merck. Despite the challenges we faced amid the COVID-19 pandemic. Operational performance was strong we continue to make excellent progress with our strategic agenda and we delivered on our upgraded guidance. By sector, Healthcare had a solid year overall with a broadly stable base business and significant growth of new products. At the same time, we advanced our pipeline further and rigorously managed our costs. Performance of Life Science was outstanding, with robust growth in the core business and significant contributions from COVID-19 related business. In addition, we further strengthened our leading market position through innovations and significantly invested in exciting areas for future growth. Performance Materials, which will be called Electronics from now on, saw a major boost due to consolidation benefits from Versum Materials and, most importantly, returned to sustainable organic growth in Q4. That said, we are looking ahead to 2021 with optimism. Our key growth engines, AKA, the big 3, are running full steam ahead. And we expect profitable growth of the group to be driven by all 3 business sectors and more details in our guidance later. On Slide 5, you see a summary of our headline promises of last year. And as you can see, we delivered on all of them. In fact, we even slightly outperformed our latest organic growth projections, with group sales up plus 6% and EBITDA pre up plus 8.4%. That excludes both currency and portfolio mix as well as the biogen provision release. On Slide 6, you will find the regional perspective, on the EUR 17.5 billion in sales that we generated last year. Importantly, all major regions delivered positive organic growth. Our footprint also remains balanced with Asia Pacific contributing 36%, Europe 28%; and North America 27%. Moving on to Slide 7 and the dividend. As you have seen from our release this morning, we disclosed a dividend of EUR 1.4 per share to the AGM on April 23. This represents an 8% increase over 2019 and a payout ratio of 23.1% of EPS pre, excluding the Biogen provision release. And this is fully consistent with our dividend policy aimed at continuous dividend growth in line with our earnings development. And also our commitment to ongoing deleveraging remains unchanged. Let's take a closer look at 2020 from a strategic perspective, starting with Healthcare on Slide 9. Overall, Healthcare showed robust performance with organic sales and EBITDA pre growth of 3.4% and 7.6%, respectively. This excludes the Biogen provision release and represents an organic margin increase of plus 120 basis points, which is remarkable in light of over EUR 300 million lower nonrecurring income compared with 2019. Foreign exchange was a significant margin headwind. And while we did benefit from pandemic related relief on Opex, underlying margin expansion was still healthy, reflecting solid top line leverage and stringent cost discipline. In terms of the main components of sales, a highly resilient base business was broadly stable as we managed to recover swiftly from a pandemic related hit on our Fertility franchise in Q2. We also made progress toward our pipeline sales ambition of EUR 2 billion by 2022 as sales of new products rose EUR 267 million or plus 68% organically, a true testament of our ability to launch and commercialize effectively even in challenging times. As expected, the main driver was Mavenclad. Following significant impact by COVID in spring, we saw renewed momentum starting in June with encouraging market share gains. For Bavencio, 2020 was a real inflection point. Following the presentation of practice-changing data in first line, you see at ASCO, we received U.S. approval midyear and recently completed this with approvals in Europe and Japan. Another oncology highlight of 2020 was the first-in-class approval of TEP Medco in Japan, the first and only once-daily oral Met inhibitor for patients with metastatic non-small cell lung cancer with met X14 skipping alterations. And again, we kicked off 2021 on an equally positive note with the corresponding approval in the U.S. That said, we continue to see significant growth potential for our Healthcare business beyond 2022 as well. With evobrutinib, we pioneered the development of BTK inhibitors in multiple sclerosis. And despite the pandemic, our Phase III trials continue as planned, with data expected to be in-house in late 2023. We also remain committed to the development of bintrafusp alfa. While the recent termination of the 037 study was disappointing, program remains broad, assessing largely independent hypothesis across different settings. We are continuously learning from the 037 data, and we will ensure that this informs our next steps. We will update you on the second line PTC study by end of March. Regarding our leading DDR portfolio, we have recently initiated a Phase II study with berzosertib in SCLC. And last, but not least, we're excited about the in-licensing of xevinapant as announced on Monday. This promising Phase III compound is a perfect fit to our oncology pipeline and leverages our heritage head and neck cancer. Switching to Life Science on Page 10. Year performance in 2020 was truly outstanding, with organic sales and EBITDA pre growth of plus 11.8% and plus 17.2%, respectively. As a consequence, the margin came in at a record 32%, reflecting solid top line leverage, a favorable product mix and slight cost benefits in the light of the pandemic. The list of our contributions to the fight against COVID-19 is long, and we estimate that for 2020, as a whole, about half of the growth can be explained by sales of products leveraged in COVID-19 vaccines, therapies and diagnostics. This also means that our core business was very robust, delivering healthy growth in line with the lower end of our midterm targets despite a significant impact from lockdowns on lab activity, especially in Q2. From a portfolio perspective, Process Solutions was the star performer with plus 22% organic growth, followed by Research Solutions with a very good plus 5% and Applied Solutions with a solid plus 3%. From a customer perspective, farm and biotech as well as diagnostics led the growth, followed by testing, together more than offsetting muted trends in industrial and declines in academia. This very strong performance would not have been possible without the fantastic work of our teams around the globe and their tireless efforts to cope with the unprecedented demand in certain parts of our portfolio. Our supply chains have held up extremely well thanks to excellent crisis management, and we've been addressing bottlenecks proactively through a broad set of measures, including clear allocation principles, flexible capacity utilization and significant capacity expansions, both operationally and physically. On the physical capacity expansions, please note that out of a total of over EUR 300 million, investments in Danvers & Jeffrey are of particularly important in the context of COVID-19, and I'm happy to report to you today that we are fully on track and already in the process of ramping up. Last but not least, 2020 was also a great year in terms of new product introductions with examples, including process pad and orchestrator as key pillars of our next-gen monoclonal antibody platform or the award-winning Blazar platform, which provides a fundamental shift in biosafety testing. So let's now go to the next slide for a view of Electronics, our previous Performance Materials sector. You may wonder why the new name. Well, it's simple. It's because this is what we do is because close to 90% of our sales come from electronic materials, services and equipment as a result of the successful transformation that we have executed in the recent years. 2020 performance was boosted by 3 quarters of consolidation benefits from the Versum acquisition. Organic sales and EBITDA pre growth were still negative for the year as a whole at minus 3.2% and minus 7.5%, respectively. However, with Versum fully in the base since October, organic growth turned strongly positive in Q4. Sound execution on cost management drove a margin of 30.3%, so fully in line with our midterm target, and only slightly down compared to 2019 despite a meaningful pandemic impact leading to double-digit organic sales declines in Display and Surface solutions. End markets in both areas took a significant hit from COVID-19 in Q2, which showed clear signs of recovery in the second half. By contrast, Semiconductor Solutions, which stands for close to 60% of sector sales, delivered excellent results, with organic growth of plus 14%, suggesting further outperformance in a strong market. The integration of Versum is running smoothly, indeed, significantly ahead of plan. And as Kai will explain later, which speaks to the strong collaboration of our teams despite the restrictions we all currently face in our day-to-day work. After the first full year of the Versum integration, our combined Semiconductor Solutions product and service offering is one of the most comprehensive portfolios in the entire industry. We drive innovation not only through focused investments in key growth areas, such as our next-gen semi materials center in Korea, but also through thought-leading big data and machine learning projects that are highly appreciated by our customers. We focus on customer centricity and bring to the table with customers value, agility, innovation prowess, application know-how and supply chain resilience. This paid off not only in the form of various supplier awards, but also in over 100 semi material POR wins in 2020 alone. And with that, let me hand over to Marcus, who will run you through our key financials.
Thank you very much, Stefan, and a warm welcome also from my side. I'm now on Slide 13, with an overview of our headline figures for 2020. Overall, we are very happy with the development of our key performance metrics. We saw strong sales growth of 8.6% and even faster earnings growth with EBITDA pre and EPS pre, excluding the Biogen provision release, up 10.3% and 9.2%, respectively. We faced significant currency headwinds, although these were more than offset by positive portfolio effects, while nonrecurring income items, excluding the Biogen provision release were over EUR 300 million lower than in 2019. Please also note that, in line with our policy, EPS pre include impairments for certain Healthcare assets in the mid-double-digit million euro range in Q4. Operating cash flow was very strong, up 22%, reflecting strong earnings growth paired with good working capital management. As a result, we were able to delever it quickly with net debt-to-EBITDA improving from 2.8x to 2.1x year-on-year. Moving on to the composition of growth in 2020 on Slide 14. Group organic sales growth was strong at 6% as a moderate decline in Electronics was more than offset by moderate growth in Healthcare and very strong growth in Life Science. Earnings followed the same pattern, and Stefan has already guided you through the most important drivers for each of the 3 business sectors. So let me just add a comment on corporate and other costs. These were higher compared to our latest guidance, mainly due to lower-than-expected hedging gains, and provisions for our long-term incentive program. Portfolio effects were positive, partly compensated by negative FX, resulting in group EBITDA pre of EUR 5.2 billion. Organically, EBITDA pre rose 16.8% or 8.4% excluding the Biogen provision release and by 12.1% in Q4. However, before diving into the details of the first quarter, let's take a brief look at our reported figures on Slide 15. EBITDA pre increased by EUR 817 million in 2020 for the previously mentioned reasons, while EBIT growth was even higher at EUR 865 million giving lower adjustments compared with 2019. The financial result improved by EUR 30 million, mainly reflecting a better interest result. The effective tax rate came in at 24.2%, which is towards the lower end of the guided range. As such, reported net income and earnings per share rose by 30%. And with that, let's move on to a review of our fourth quarter results, starting with Healthcare on Slide 16. Healthcare organic sales growth in Q4 was solid at 4.1%, reflecting a broadly stable base business and significant incremental contributions from our new products. Within the base business EBIT took accelerated to double-digit organic growth, mainly due to the temporary supply agreement with Eli Lilly, while Rebif accelerated to double-digit organic declines against tough comps. Meanwhile, the recovery of our Fertility franchise continued, internal medicine showed further organic growth despite initial impacts from volume-based procurement in China on Google Fresh. With regard to new product sales, Mavenclad was up 48% organically, thanks to further market share gains. However, please note that the dynamic market remains suppressed, which is a watch out for Q1. Bavencio soared by 90% organically, mainly due to the successful U.S. launch and first-line bladder, while recent approvals in Europe and Japan in this indication, prepared the ground for further acceleration. Regarding earnings, EBITDA pre increased 7.7% organically, and thus, again, faster than sales, reflecting continued underlying cost discipline as pandemic related cost benefits were roughly balanced by lower nonrecurring income. On the topic of nonrecurring income, please note the following: income from active portfolio management was in the mid-double-digit million euro range, both in Q4 and for 2020 as a whole, with key contributors, including the out-licensing of M6594 and atacicept. Deferred income from GSK was around EUR 30 million in Q4 and around EUR 85 million for the full year, thus slightly above our latest guidance due to the implications of the recent study -- 037 study termination for bintrafusp. Further analysis since then has also revealed that we are unfortunately no longer entitled to any development milestone payments from GSK. Turning to the outlook for nonrecurring income in 2021. First, we expect deferred income from GSK of around EUR 80 million in 2021, of which we expect to book roughly EUR 20 million in the first quarter. Second, we expect income from active portfolio management in the low- to mid-double-digit million euro range, although the likelihood for income in Q1 is limited. And third, we expect around EUR 50 million in milestones, which are fully booked in Q1 for the recent approvals of Bavencio in Europe and Japan. Moving on to Life Science on Slide 17. First quarter organic sales growth in Life Science marked yet another all-time high at 19.3%, including 11 to 12 percentage points from COVID-19 related business. From a portfolio perspective, Process Solutions was again the main driver, with organic growth of 27%. This is on par with an already very strong Q3 and was driven by robust growth in the core business compared to significant demand for products used in COVID-19 vaccines on therapy. Meanwhile, order intake growth in Process Solutions accelerated further in Q4 and stands now at over 60% for the full year. This provides us with good visibility well into the third quarter of 2021. Turning to the other 2 businesses. Sales and Research Solutions accelerated to a remarkable 16% plus and Applied Solutions also picked up further to a very strong 10% plus, both organically. The 2 businesses benefited from a significant year-end recovery in the core business, while, at the same time, we saw incremental demand for our raw materials used in COVID-19 diagnostics. This demand was especially pronounced in Research Solutions, with sales in its diagnostics segment exceeding plus 50%, 5-0%. At the customer segment level for Life Science overall, pharma and biotech as well as diagnostics and testing continue to show above average growth, while industrial and academia accelerated meaningfully with the latter turning even slightly positive in Q4. And in terms of regions, again, double-digit organic growth across all major regions. Regarding earnings, EBITDA pre rose 25.5% organically in the fourth quarter, implying a margin of 32.2%, up 140 basis points. Similar to Q3, this was mainly driven by operating leverage, positive pricing and a favorable product mix. And with that, let me hand over to Kai for a review of, and deep dive into Electronics.
Thank you, Marcus, and good afternoon, everybody. So I'm now on Slide 18 of the presentation. So let me start by building on Stefan's comments on the strong organic sales growth of our now renamed Electronics sector. Electronics delivered organic sales growth of 8% in Q4 despite a prevailing COVID-19 impact on end markets and Surface Solutions in addition to the decline in Display Solutions. Clear turnaround in the first organic growth in 7 quarters was driven by strong above-market organic growth of 20% in Semiconductor Solutions, which, as of Q4, also includes the growth of legacy Versum. Along with FX burden of 6.5%, fourth quarter EBITDA pre was also impacted by year-end inventory management and respective under absorption of fixed cost and production. This resulted from the COVID-19 driven sales drop in Display and Surface Solutions in the prior 2 quarters. Nonetheless, we are able to keep the EBITDA pre margin very close to the 30% mark. This relative margin stability despite adverse external effect was made possible by continuous diligent cost management as part of the bright future transformation program as well as significantly accelerated and increased Versum synergies, which I will get through in a moment. I'm now moving on to Slide 19. Stefan has already detailed the rationale behind our decision to rename our Performance Materials business to Electronics, and please allow me to reiterate that message. It's not the Electronic business of Merck simply because we thought it sounds better. It's now called Electronics because we underwent a successful transformation into a business that, today, supplies a broad base of leading electronic players with materials, services and equipment to enable the next-generation of electronic devices. So looking back and comparing the business to what it was in 2013, we have not only more than doubled the sales through focused investments and acquisitions, we have also transformed into a much broader business with leading positions as an innovation-driven supplier to the semiconductor and display industries. We can proudly state that we have a best-in-class portfolio of capabilities, and we are confident that return to organic growth in Q4 2020 with 8% above last year is an important proof point of the success of this transformation. So I am now moving on to Slide 20. Innovation in the electronics industry is driven at the atomic level, where our materials, service and equipment enable our customers to make smarter, smaller, faster and more energy-efficient devices. So in fact, the importance of materials continues to grow with each new generation of electronic devices. And our proven track record of deep expertise in this area supports a strongly positive outlook for the coming years. Furthermore, while the significant increase in work-from-home and learn-from-home settings has its own challenges for many industries and for society at large, it is potentially also a catalyst for a paradigm shift that will further strengthen the positive momentum for technology and infrastructure in electronics. As you know, we upgraded our midterm guidance for organic sales growth in the sector to a CAGR of 3% to 4% at our Capital Markets Day a couple of months ago. In addition, we already upgraded our original Versum synergy commitments twice in 2020, and we are significantly accelerating and increasing them again today. And last but not least, we are even more optimistic regarding 2021 in particular, as you will see in the guidance section of this presentation. Now on Slide 21, you will find our latest Versum synergy update. As I just mentioned, we raised our targets for 2020 twice. And thanks to additional Q4 efforts of our teams, particularly in procurement and supply chain, where tracking shows that we are already -- we already fully realized EUR 50 million cost synergies in 2020. As stated earlier, this acceleration allowed us to keep the EBITDA pre margin close to 30% even in Q4 despite a significant FX spend and COVID-19-driven under absorption of fixed cost from year-end inventory management. Looking towards '21 and '22, we are increasing and accelerating our synergy targets significantly, now aiming for the EUR 83 million mark already 1 year earlier in '21, while, again, raising our '22 target by over 10% and to approximately EUR 95 million. And as Stefan already noted, the integration of Versum has been a very successful journey, and we are significantly ahead of plan despite the difficult external circumstances, which indeed speaks for the strong ongoing collaboration of our teams. And on this very positive note, please let me hand back to Marcus.
Thanks, Kai. I'm now on Slide 22 for a few remarks on our balance sheet as per year-end. The EUR 2 billion contraction of our balance sheet is almost entirely driven by FX as a large share of goodwill and intangible is incurred in U.S. dollar. Financial debt decreased by over EUR 1 billion, while cash and cash equivalents increased by around EUR 600 million, given strong operating cash flow and measures to secure liquidity amid the pandemic. As already mentioned earlier, the net debt-to-EBITDA pre ratio stands at 2.1x, a significant improvement compared to the 2.8x a year ago. The equity ratio remained stable at 41%. Moving on to cash flow in Q4 on Slide 23. Operating cash flow was very strong at EUR 1.3 billion, up 87%, supported by strong earnings growth, good working capital management and a reduced negative effect from other assets and liabilities. Investing cash flow declined significantly, mainly because last year included the acquisition of Versum. And financing cash flow increased considerably, reflecting a meaningful reduction in short-term bank loans in commercial papers. Finally, let me also briefly comment on CapEx. This was higher than guided due to a cash out for the opportunistic purchase of our Life Science premises in Burlington, Massachusetts. Excluding this effect, we would have been in the lower half of our guidance. And for 2021, we are guiding to CapEx in the range of EUR 1.35 billion to EUR 1.45 billion, hence, above our midterm outlook, mainly to support the higher-than-expected growth in Life Science. With that, I would like to hand over, or hand back to Stefan for the outlook.
Thank you, Marcus, and I'm now on Slide 25. In summary, our performance in 2020 was strong, strong despite the challenges we faced. We saw a material impact from lockdowns in Q2, and we actively managed a swift recovery in the second half, while simultaneously capitalizing on new opportunities. We're making significant contributions to the fight against COVID-19 and the arrival of effective vaccines less than a year after the start of the outbreak is unprecedented. Yet uncertainty remains high, which is why I would like to outline our underlying assumptions in the context of COVID-19 before going into the details of our guidance for 2021. Above all, we assume a visibly increasing penetration of vaccinations across large parts of the population starting from summer alongside a gradual easing of lockdowns with virus mutations unable to significantly validate the vaccination efforts. And we believe that the overall situation will improve in the course of the year. For our Healthcare business, we confirm our base business and pipeline targets despite greater uncertainty. More specifically, we expect the recovery of our Fertility franchise to continue and the pandemic impact on ramp-up of new products to ease. The biggest watch out here is the dynamic high efficacy market in multiple sclerosis, which is still significantly suppressed. In Life Science, we anticipate continued additional demand in process solutions, while trends in research and applied solutions will likely be more volatile and diverse with the overall effect expected to be neutral to positive. Similarly, within Electronics, we also expect a neutral to positive impact on Semiconductor Solutions, while Display and Surface Solutions should return to their respective underlying trajectories. And with that, let's move on to the guidance on Slide 26. As mentioned earlier, we are looking ahead to 2021 with optimism. Organically, at group level, this means we guide to strong sales growth and even faster earnings growth, with EBITDA pre set to increase in the high single digits to low-teens, excluding the Biogen provision release. Currencies are expected to have a negative impact of 2% to 5% on both sales and EBITDA pre. On Slide 27 -- on to Slide 27 for a summary of our key earnings drivers in 2021. Indeed, not much to comment as these are very consistent with what we told you at our Capital Markets Day back in September. And let me just reiterate that our key earnings drivers, the so-called Big 3, are very much in task. And based on prudent assumptions, they should be largely unaffected by COVID-19, with potential constraints around the uptake of pipeline products balanced by incremental opportunities in Process and Semiconductor Solutions. On Slide 28, you will find the usual bottom-up perspective on the guidance. In summary, we expect strong organic sales and EBITDA pre growth in Healthcare, low teens organic sales and EBITDA pre growth in Life Science and Electronics deliver solid organic sales growth compared with solid to strong organic EBITDA pre growth. And to be clear, when we talk about low teens growth, we mean anywhere in the range of about 10% to 13%. Now before we start the Q&A, let me hand back to me Marcus for a brief update on ESG.
Thank you, Stefan. As you will remember, we introduced our 3 new sustainability goals on our last earnings call. So please allow me to start with a quick recap on Slide 30. Our goal #1 is to create a better and healthier future for more than 1 billion people in 2030. We will do this by leveraging innovation in science and technology to improve the quality of life for underserved populations based on our expertise across all business sectors, in close collaboration with a wide range of partners. The second goal is about the creation of sustainable value chains by 2030. To put this into practice, we will raise the awareness of our workforce on sustainability and promote supply chain stability while continuing to provide our customers with state of the art products and services based on collaboration with suppliers that follow key environmental and social standards. Our third goal addresses the reduction of our environmental footprint. And for more color on this, let's go to Slide 31. Already in 2009, we set ourselves a goal for 2020 to reduce total direct and indirect greenhouse gas emissions by 20%. And I'm happy to report to you today that we actually over-delivered on this target, reducing scope 1 and 2 emissions by as much as 25%. While this excluded the impact of the Versum acquisition, our new reduction goal is based on the total of around 2 million tons of CO2 equivalence, including Versum. That is by 2030, we intend to lower our direct and indirect emissions by 50% compared with 2020 and source 80% of our purchased electricity from renewable sources. Moreover, we plan to reduce scope 3 emissions from the up and downstream value chain by 1,500 metric kilotons of CO2 equivalence. The overarching goal is to achieve climate neutrality in 2040 across our entire value chain. Regarding water, we also outperformed our 2020 goal, reducing water consumption at high consumption sites by 27% over 2014. In addition, we successfully finished implementing a sustainable water management system across our sites, and developed a new set of water goals for 2025 and '30 as detailed in the bottom right corner of the chart. Finally, we are also well on track to achieve our 2025 wage target. On my last slide for today, you will find an overview of our agenda towards achieving our ESG targets. Overall, we would like to leave you with a message that we are taking ESG very seriously and are strongly convinced of the mutual benefits of pursuing the targets for our business, various stakeholders and society in large. Consequently, at this year's AGM we will put to vote a revised Executive Board compensation system. In particular, the variable pay scheme will be extended to include our 3 sustainability targets from 2021 onwards, starting with the individual modifier for the profit sharing component. From 2022, the long-term incentive plan for the Executive Board and senior management will also be linked to sustainability, with an impact of up to plus or minus 20% based on performance against suitable ESG KPI. Now back to Stefan.
Many thanks, Marcus, and this concludes our presentation for today. As you know, Belen will succeed me as CEO on May 1. And I can tell you, I simply cannot think of a better person to do so. I am actually extremely happy that Belem, and nobody else is my successor. Belen's track record as a leader is superb. She's been imperative to the successful turnaround and fundamental reshaping our Healthcare business sector into a global specialty innovator. And this has also been one of the key elements of the Group's overall transformation into a global leading science and technology company. Having worked closely together with Belen for the past 10 years, I can also tell you that she is not only a tough manager and great leader, but also a wonderful person who has everything it takes to continue our success story. Belen, over to you.
Thank you, Stefan, for your kind words, and hello, everyone. I just wanted to share a few comments from my side, but I will keep it very brief in the benefit of time. First of all, science and technology innovation has driven Merck for over 350 years. And we owe it to Stefan's strong ambition and leadership and the commitment of our people that Merck is better equipped to face the future than ever before. We have great business momentum across the 3 sectors, as you have seen today, and that despite the pandemic. As Stefan mentioned, I will succeed him in 8 weeks from now. And I have to say I am truly honored to follow in his footsteps and in those of multiple generations of Merck leaders who have considered themselves through custodians of our heritage, and simply the next in line. Achieving lasting leadership in science and technology innovation is paramount to me. And together with my dear colleagues, I will continue to push this leadership agenda as of May. I also expand firmly by the promises that we have previously made as part of our mid-term guidance. Overall, to create sustainable value for our owners, our investors and for the society at large, and what does it take to do that? First, it requires us to raise the bar for our business performance even higher, keeping a keen eye on the market, on the competition to understand how we can outperform across all sectors and functions. Turning the science and technology vision into sound strategic moves and focusing on excellent execution of our plans. Our focus will continue to be on delivering relevant innovation and profitable growth in the years to come, primarily through the so-called Big 3 that you know very well, and on which we are concentrating a substantial share of our investments, Process Solution, Semiconductor Solutions and our Healthcare pipeline. Finally, Stefan always kept us very closely connected to the Capital Markets, operating in a spirit of transparency, clear communication and productive dialogue. You can expect the same from me, and I very much look forward to continuing our dialogue in my new role. With this, I'm very, very pleased to give the floor to my successor as Healthcare's CEO, Peter Winter. I absolutely sure many of you know Peter from his previous roles at Almirall and Sanofi. We've worked together in the past. He succeeded me when I came to Merck, and I am very, very pleased that he has decided to join us.
Peter, over to you. Well, thank you very much, Belen, and hello to everyone on today's call. First of all, let me express my heartfelt gratitude to the Merck family for the trust they placed in me, to my colleagues of the Executive Board for their ongoing support, and last but not least, to our teams around the globe for the warm welcome and the many valuable interactions we already had since my arrival. Many of you know me from past interactions, but for those who don't know me, I joined Merck from Spain based Almirall, where I served as CEO for the last 3 years. While prior to that, I spent 22 years at Sanofi, including as a member of the Executive Committee since 2013. When Merck approached me, it didn't take much convincing that this was really an exciting opportunity that I couldn't miss. Merck's global reach, together with its strong portfolio of legacy products, new launches and attractive pipeline and exciting therapeutic areas with very high unmet needs, speak for themselves. And if at all needed, 2020 was the perfect showcase for the solidity of the business and the organization's agility. That being said, I cannot wait to guide Merck Healthcare forward in the years to come to contribute to our performance and advance our purpose for patients. With that, back to you, Constantin.
Thank you very much, Peter. I think we're now ready to take your questions. And with this, Diana, please the first question.
[Operator Instructions] And we will now take our first question from Matt Weston with Crédit Suisse. .
First of all, I guess it falls to me to congratulate Stefan for his long and successful career at Merck. And obviously, to wish him well at UCB and his other endeavors in retirement and to welcome Peter and Belen to their new roles. So congratulations. Moving to questions. Three, if I can, please. The first is on Life Science growth during 2021, and the phasing that you've assumed within guidance over the course of the year. So clearly, we had an extremely strong performance from the division in the second half of 2020. You pointed to accelerating momentum in the first half. What have you assumed in your plan for how COVID demand continues in the second half of 2021? Secondly, on the change in name of PM to Electronics, I understand that, that fully reflects the majority of what you do. But what does that mean for the 10% of colleagues in the pigments business? Is that now clearly declared noncore? And should we anticipate the sales process being started in the near future? And then finally, on xevinapant. Clearly a very interesting acquisition that strategically fits with Erbitux in head and neck. As I recall, you had M3814, a DNA PK inhibitor, which was also being looked at as a radiosensitizer in head and neck cancer. What's happened to that in-house development program given the focus on xevinapant?
Thank you, Matthew. Thank you for your kind comments. I will address your first 2 questions. The third question, I will give to Danny. So your question is basically about how sustainable is the COVID-19 induced upside in the near and long term? And what's the underlying growth, and that's an excellent question. And let me try to address it in the following way. As you can see from our qualitative guidance for 2021, we expect another year of strong growth in Life Science against an already strong comparable. In other words, we expect 2 consecutive years of growth well above our midterm guidance, and this is mainly due to significant net benefits related to COVID. More specifically, regarding 2021, we expect our Life Science core business to grow robustly and be the major contributor of growth. And on top of this, we expect to continue participating strongly. I think the main driver of these tailwinds will be bioprocess to support COVID vaccine and therapy production, while diagnostics will provide a smaller contribution as we participate in a more limited manner by supplying critical raw materials and services. Our absolute COVID book of business for bioprocess is expected to increase more than 60% over 2020, although the contribution to our total growth would be lower given the baseline already established in 2020. Looking ahead, we are continuing to assess the potential durability of this demand, which will depend on several factors, how several factors will play out, including how quickly vaccinations proceed, variability of mutations, whether or not boosters are needed and durability of immunization. There's quite a few people who assume that this virus will be endemic and that mutations will continue to develop and that this will be an influenza type of situation. We've seen FDA guidance on mRNA vaccines on rapid adaptation of this without big clinical trials, very difficult to predict, but clearly within the realm of possibility. So a lot of moving parts, which makes it difficult to assess how much exactly we will see in 2021. And this -- whether this will be the peak or not. And we don't have a crystal ball on this, to be frank, but you can rest assure that we will continue to participate in these tailwinds. And we will take our fair share. What you should also note is that we have -- I mentioned the capacity expansion, and that is basically online as of January. We will be fully ramping up. We're also expanding lipid capacity. We're addressing certain constraints in filter manufacturing. We also assume that our workers will get vaccinated over time and that we can go back to more -- to better shift models. So all in all, we are very positive. And yes, there might be upside to our Life Science numbers, but there's so many moving parts, we think that our current predictions are realistic and ambitious. The second question, PM, Electronics. So we refer to our biopharma pharma businesses, biopharma. We have plenty of businesses in there that is not bio or anything. Our Life Science business, we call Life Science. We are -- we supply test materials to the mining industry, et cetera. So it's normal that there are certain businesses that are within the portfolio that do not necessarily exactly fall under the terminology we use. I was asked the question this morning by the media about Surface Solutions. And my response to the media was that the team is working very, very hard to turn this business around. We see some encouraging signs from the automotive industry, while cosmetics remains challenging. But we're working hard on turning -- on returning this business to success. And then I would -- with the head and neck question, I would hand over to Danny.
Yes. Thank you, Stefan. Matt, that's a great question. So as you mentioned, M38 [indiscernible] the DNA PK is actually another method to sensitize the tumor to radiotherapy radiochemotherapy, mostly radiotherapy in the case of the DNA PK. So generally speaking, these experiments are extremely difficult to carry out. Why? Because you need to sensitize it for sure, but you don't want to over sensitive because once you oversensitized, you come up with toxicity, and then you need to reduce the doses of the radiotherapy and you enter yourself into a very unpleasant vicious circle for COVID patients. But we are running this study right now with Eco Circuit, as you just mentioned. And we'll be able to come up with the results towards the end of the second half of this year in these 2 settings, locally advanced head and neck and rectal cancer. As it looks right now, it's quite, I would say -- from the reasons that I mentioned before, quite challenging. The beauty of xevinapant is that -- and this, you could see actually very clearly in the Phase II study, is that very robust efficacy that was shown on local regional control, PFS and OS was achieved without any decrease in doses -- in high doses of cisplatinum and radiotherapy. So this gives us confidence that this is the right way to sensitize this tumor to these regimens.
And we will now connect questions from Richard Vosser with JPMorgan.
Two, please, on pharma, please. Just on the Mavenclad franchise and the multiple sclerosis franchise in general, perhaps you could give us your view on the impact the second wave is having on the overall demand for multiple sclerosis treatment? And how you see that affecting the ability to roll out Mavenclad in Europe, France and the U.S. and the growth there? And second question, just an update on the penetration into the maintenance setting in bladder for Bavencio? Again, also, how you're seeing the effect of lack of new patient starts or patient flow there from COVID-19? And how you see that developing throughout the Q '21?
Peter is just going to answer both questions.
Yes. Thanks, Richard, for the questions. First on Mavenclad. So what we see is actually that there are 2 dynamics here at play. #1 is the overall size of the high efficacy market. And then, of course, there is a competitive position of Mavenclad within -- we have seen actually that after the severe depression of Q2 last year, that the high efficacy market came back, but always remains roughly 20% below the same levels for a comparable period the year before. And we continue to see that actually. So I think that Marcus and Stefan also alluded to that in their prepared remarks that this is something that there's a watch out. And as -- hopefully, of course, with the increasing vaccination, with the increasing liberalization of the lockdowns, we will see this effect waving as we progress through the year. So that's #1. #2 is about the position of Mavenclad within. So we are happy to confirm that we continue to gain market share, both in Europe and in the U.S. Don't forget also that we have a kind of a natural hedge in our portfolio between Mavenclad and Rebif. So if the high efficacy segment is kind of touched by COVID-19, we'll have an automatic upside of Rebif, right? That's the kind of communicating basis, if you will. So that's basically where we are with Mavenclad. Your second question on Bavencio. Contrary to the high efficacy market in MS, we don't really see a significant impact of COVID-19 on the development of the oncology market at large, nor in the bladder cancer market. So we continue to track well with Bavencio. As you have seen from the slides, we are increasing both depth and breadth of prescribing of Bavencio. And then, of course, we're very excited by the, let's say, very imminent launch of Bavencio in some European countries like Germany where we have immediate access in terms of reimbursement. And also in Japan, obviously. Don't forget, if you think about the overall Bavencio equation that the targeted population pool is actually very high in Europe and Japan because of the significantly higher degree of use of chemotherapy in the first-line setting. So I think that you should anticipate that the relative contribution for Bavencio in bladder in Europe and Japan is going to be significant.
We will now take our next question from Sachin Jain with Bank of America.
Three questions, please. Firstly, on Life Science and the CapEx increase program that you've outlined, could you provide some color on what capacity increases are coming online and when, just to get some quantification of that? And any color on capacity bottlenecks that you're currently seeing that could be unlocked in any quantification there? So that's question 1. Question 2 is a big picture pipeline question. So pipeline sales in 2020, roughly EUR 700 million. You clearly have a EUR 2 billion goal for '22. Should we be thinking about EUR 21 million in the middle of that range, roughly EUR 1.3 billion-ish or given COVID, is this EUR 2 billion going be more EUR 22 million loaded now? And then thirdly, on Healthcare cost growth, obviously, a lot of cost discipline team within full year '20. Any color as to how we should think about cost growth in Healthcare this year, should we be thinking about a rebound from COVID lows? Or is the absolute cost base still flat to declining?
Thank you, Sachin. I'm going to start with your Life Science question. So the investments we have, we are investing EUR 140 million in Darmstadt in a new membrane production plant for aseptic filters. We have -- we're in the process of investing EUR 100 million in Carlsbad, more than doubling our current viral and gene therapy capacity. We have invested EUR 59 million in medicine on mostly ADC, ADC production, and we have invested EUR 40 million in Danvers and Jaffray. And we are creating 700 additional new jobs for single-use and filtration production. And since the last earnings call, we have continued to maximize output from all existing assets to meet customer demand. You remember, we've discussed that we have a strict prioritization principle in place. That means we prioritize COVID means that non-COVID work gests deprioritized. Some of this demand may be lost, but we think that the majority of the demand will come back later. Our headcount, as I said, has increased from 3,800-or-so to much more than that. And as part of our continuous improvement program, we use Lean 6 Sigma tools to drive our yield, our efficiency programs so that we can create maximum output. We have opened about a 6,000 square meter expansion in Massachusetts for the mobile single-use, single-use product. And we expect this to basically double our capacity. And in Jeffrey in New Hampshire, we have a new manufacturing line for the filtration, virus or filtration systems that went also live in December and will increase our output significantly. You have also probably heard about the partnerships that we have with the various mRNA companies, namely BionTech, but also other companies on enhancing our output for lipid. And you may have -- you may remember that we have bought Mtech, a company in Hamburg that brings us into the active drug substance business for RNA. And we're reviewing our long-range demand for our product portfolio against the expected capacity. And we will continue to define a list of expansions and accelerate that further in a very timely fashion. And above all, we will be monitoring the situation. We're prepared to adapt our initiatives. And we think that we have sufficient capacity available in the medium term. And I talk to our main customers. Our customers also want us to produce single-use reactors in Europe because of the U.S. Wartimes Act. We have very concrete plans and talking to a specific government in this context. Our mRNA and vaccine customers give us very good feedback on the ramp-up. And they expect to be -- they expect that some of these questions, and we are not the only ones, our competitors are on very similar situations, won't be bottlenecks anymore in the near future. With that, I would hand over to Peter.
Yes. So thanks, Stefan. So on the question on the EUR 2 billion pipeline ambition. So the short answer is yes. We remain committed to this ambition. On the question whether also due to ongoing COVID impacts on the higher efficacy market in MS made this be somewhat more back-loaded that this may well be the case, but it depends, of course, how fast the normalization of the high efficacy market will...
Okay. I'll take the third one. Cost and Healthcare in 2021. So first of all, please note that at this early [indiscernible] guidance on single cost lines in our 3 sectors. However, just to give you a little bit, let's say, food for thought or flavor. When looking on COVID-19 cost savings for the entire group, we have seen a net number of around about EUR 150 million occurring in 2020. And given that Healthcare is pretty much exposed to travel and also to external events, you can assume that we have, I would say, a slightly overproportionate share of this EUR 150 million going to Healthcare. For the entire group, I think it is appropriate to assume that we would -- that we aim to get some 50% of those net savings sustainable into 2021. So that would be clearly an upside for the Healthcare cost for next year. On the other hand, please keep in mind, the most recent news that you have gotten on xevinapant, that will, until launch date in 2025, also contribute some additional R&D costs predominantly to our cost lines. We have made the math, obviously, and we believe that, for the next 3 years, that will be a high double-digit million euro amount year-on-year additional in our cost lines. The last point, please note that everything is included already in our guidance for 2021.
And we will now take the next question from Peter Vedult with Citi.
Just 2 questions. Just on Life Sciences again and Semiconductor Solutions. I think at Q3, you were talking about 6 to 9 months visibility on Life Science. Could you perhaps, in light of the surge in demand there as well as with semi, just update us with your latest thoughts on how much visibility you have with these businesses? And then secondly, a 2-parter for Peter on Healthcare. Are you willing at this stage to give any sort of outline as to the commercial peak sales potential you see with xevinapant? And then more strategically the balance sheet deleverages and given the current pipeline and you arriving at the new Healthcare head, should we be expecting in-licensing efforts to be a much more visible part of your strategy going forward?
So this is a question. I start with the Life Science question, and I hand over to Kai for the semi question and then to Peter for Healthcare. Yes, we do have good visibility into the order book, and that explains our optimism about a continued trend this year. We partner closely with our customers to ensure that we're able to successfully meet their requirements, and that gives us this good visibility now well into the second into the second half. We expect a strong first half of 2021 and a strong second half. However, versus the second half was stronger comps. That's what would you need to take into account. We see absolutely no sign for any deceleration in this respect. Let me say it again, nobody at this stage can clearly predict what the COVID situation is going to be. Nobody knows what kind of variance will emerge. How the vaccination regime is going to be in future. Nobody can at this stage. But there is a high likelihood for this virus to become endemic. And if it's endemic, we see an enhanced trade of mutations, especially in the Southern Hemisphere, where the few people are being vaccinated, that is -- I think, that leads -- should lead us to a situation that -- where we should assume a significant probability for COVID vaccinations to stay with us. And given that, that means that we're talking about longer-term trends. One last comment on this. I have almost, on a daily basis, heads of government, people from the EU commission from various countries on the phone who tell us that they -- one of the lessons out of this endemic is that our healthcare systems must become more resilient and that they need to set up safety stocks of reagents for diagnostics and that they want to build up a vaccine and biologics infrastructure locally in various countries that governments want to partner with a company like ours, that is yet another positive midterm factor. With that to Kai.
Peter, let me take the question on semi. The visibility on our side hasn't changed much over the time. So there is -- we use the same market forecast for their new REIT and with the high variability right now because nobody really knows how 2021 will pick up in terms of capacity as well. So many of our customers are investing quite a bit, and these additional capacities have to come on stream first until there will be additional opportunities. However, I think you see the -- our midterm forecast, you see in this year's forecast being quite aggressive. We understand there's an opportunity to go up to the currently available capacity of our customers with kind of accelerated growth rates. However, just a word of precaution, that the Q4 organic growth rate, of course, is exceptional. There were additional factors from our equipment business as well included. So that is not the run rate going forward. However, you could understand our long-term midterm forecast is very valid, and we are ranging at the upper end of that forecast for our semi business.
Yes. So Peter, on the question, first, as for related to Stefan. So to give you a bit of a flavor market size, what we are talking about. So head and neck cancer remains a very important cancer worldwide. And with significant impact both in quality of life and social interactions affectation on how they look or eat and brief, but also very cool long-term outcome with a 5-year survival rate of less than 50%. So I think that's a clear indication of the degree of unmet need that is still there in this type of market. Now for xevinapant, so we will be looking at locally advanced high-risk patients in head and neck that are unresectable. And both in the U.S. and in Europe, we are looking at patient pools of more than 20,000 patients each. The other thing -- so if we are successful in both studies, so that is to say this cisplatin eligible and cisplatin ineligible and assistant ineligible patient population we believe that actually xevinapant has blockbuster potential. So that's on your question related to xevinapant. Your second question related to a more frequent, I would say, in-licensing strategy. Frankly, I think we are agnostic to it. It depends on the opportunity. It depends on the strategic fit. It depends on the strength of the biology or the strength of the POC. And I think, if you look at it from -- with this angle to the xevinapant opportunity that we licensed, that is exactly what we want to look at. It's within our TA. It is -- it really fits us like a hand in a glove. We have deep, deep knowledge of the head and neck market, both commercially, medically and from an R&D perspective. And if we come across other late-stage opportunities for in-licensing that really are a good fit for our portfolio, we will definitely consider those.
And we will now take the next question from James Quigley with Morgan Stanley.
This is James Quigley from Morgan Stanley. So firstly, on the farm deal. How are you thinking about the locally advanced head and neck cancer landscape. So CATIA is dominant in the metastatic head and neck cancer setting, and has data in locally advanced setting, I think, this year versus your data, which would come in 2024. How are you thinking about the comparing to that? And is there a chance of standard of care may move on slightly before you launch? And then a clarification there as well. In the appendix, the EUR 300 million of the EUR 380 million are approval milestones and the focus head and neck indications. Could you confirm that is for the first 2 cisplatin eligible and cisplatin ineligible? And then the second question on the binary tract data. Apparently it's been in-house for quite a while now. Is there anything -- I mean, are you committed to limit to by the end of March. I mean, is there anything in particular or unique about the data set that will require sort of additional analysis or a longer analysis than maybe we used to when other assets have come in-house and then been reported? And from what is your view of the commercial opportunity for FinFET Trust in the BTC indications?
Those questions go to Danny.
Thank you, Stefan. So regarding the xevinapant question and the KTWO head and neck. So it is obviously something that we did look into quite diligently during the due diligence process. And generally speaking, as you said, most of the positive impact that immuno-oncology had in squamous cell carcinoma of the head and neck actually always comes from the relapsed and metastatic setting, and we are not there. We are locally advanced settings. So it's a different setting. Now you rightfully mentioned that this KEYNOTE trial, which is very different from the trialing design, the Phase III with xevinapant. We are actually in the KEYNOTE trial, we're talking about high dose chemotherapy with hydrose chemotherapy and then maintenance with pembrolizumab travis is much similar. It's much shorter, of course, with concomitant chemo radiotherapy with actually 3 additional cycles of xevinapant only for a total of 6 cycles. So with this regimen or actually with half of this regimen in the Phase II study, the results in terms of PFS and OS more than 50% reduction. And the risk of these events was something that raised more than one eyebrow in the medical community. Now if I -- if we look correctly at the clinicaltrials.gov for the KEYNOTES trial, the results will be available around April, May. So we'll need to look into that. That's the technical part, but it's also worth looking at pembrolizumab data in the locally advanced setting in the PembroRad study. It was a combination with radiotherapy versus Erbitux in 130 patients. And in this setting, I think that we could summarize it nicely. There was nothing there in terms of efficacy from whichever angle that you look at. You also remember -- we also remember the avelumab study, the Javelin head and neck in the locally advanced combination with chemo radiotherapy, which is quite similar to what we are doing. This was an all-comer study. And as you also remember, there was also nothing there in the all-comer population in terms of efficacy. Now the only hint, and I think that -- I guess that that's the reason why you are asking is the PD-L1 high subgroup in that study that show kinds of efficacy. But if we are using the same method, if -- let me put it this way, MSD is used the same method as we use in the Javelin study in terms of PD-L1, then we are talking about something like 17%, 1-7% population. And with 17% of the population, while their analysis is at least according to what's in the public domain is not defined like that. I think that we feel very confident that based on our proof-of-concept and the trial design for xevinapant, we will be able to showcase the efficacy and totally we would be there about the potential. Now regarding the BTC data. As Stefan alluded to at the beginning, yes, the data is in-house for several weeks, I would say. But I think that, to your question of what is missing? It's actually the 037. The 037 results actually took us a little bit by surprise. And we locked this study not the way we usually look studies. It was locked in a haste and data keeps on flowing. So we learn from the data each and every day, and we did prioritize, I personally did prioritize this with the bintrafusp team working closely together with GSK and with external consultants to inform additional insights on that. Now in terms of -- so we will be able to communicate the BTC second line results by the end of this month as we committed to as we promised. Now of note, there are other studies ongoing, BTC first line, recruiting cervical second line, fully recruited. And we are expecting the data to be in-house by the end of this year. And also the lung 005 study. So for sure, this is our commitment. Whatever we come up with in terms of additional insights on the biturafusp study, together with GSK, we will communicate.
Next question, please.
Next. We will now take the next question from Luisa Hector with Berenberg.
So on Electronics, I just wonder if you could make some comments there on the visibility you have. Obviously, semis are very strong Q4. How far out can you see into 2021? And in surface, you mentioned ongoing pressure in cosmetics. Is that the key area of weakness still? And do you expect that to recover as COVID vaccinations gather pace? And in Electronics overall, you talk about retaining a 30% margin. But with the stronger outlook for '21, what's focus there for some margin expansion? And I wonder if you wouldn't mind just commenting on the split of Mavenclad, U.S. and ex-U.S.? And any comments on patient retention in Germany?
So Lisa, thanks for your questions concerning Electronics. So let me start with the visibility aspect, which I try to explain a bit on a larger scale in the previous question. So it's -- currently, it's hard to really have exact forecast in our industry. The market forecasts vary a lot, and it change a lot from quarter-to-quarter. So typically, what we see, of course, is our customers' behavior. And I think we were pretty good in the past 2 years to give you pretty exact forecast numbers, and we were delivering based on these numbers. So would I see the next 12 months as well? We do not have the crystal ball, however. So we need to look into the CapEx spending of our customers, whether new capacity comes on stream in order to give us additional opportunities. So by and large, what we see is not more than 6 to 9 months in our industry. On Surface Solutions and cosmetics, in particular, of course, cosmetics -- and especially decorative cosmetics, which we are in. So we are our main field of cosmetics is decorative, suffers a lot from locked down. So if people don't leave their house, they don't use any lipsticks. And that is something that continues until the lockdown situation eases. And -- but still, I think, bear in mind, the cosmetics part isn't a substantial part of Performance Materials or Electronics in the current setting. So there is not much share of that business. And it will recover certainly after vaccinations and easing of lockdown. The retention of the 30% margin, I think it's a pretty simple calculation. So if we get additional high-margin business, we rather invest our R&D spendings in that field to kind of generate additional sales growth. If you are above 30% margin, additional sales growth gives you much more returns on the long run. So this is why we do not intend to continuously simply grow margin and neglect the opportunity on the R&D side. That is why you see in our forecast this year, a pretty bullish forecast on the bottom line as well. So it's not that we relax on this side. But do not expect us to just put the money in the bottom line, but not invest in R&D. Peter?
Yes. So thanks for the question, Luisa. So on the split between U.S. and ex U.S., we do not disclose the regional split of sales. In terms of patients coming back after year 2, I think that was also part of your question. So I can confirm to you that the E2 returns continue to be high. And that actually has significantly improved since the start of the pandemic as both the HCP and the patient confidence has increased. And of course, in this particular case, providing an oral solution definitely helps.
I think we have time for 2 more questions. So next question, please.
Our next question comes from Simon Baker with Redburn.
My 2 questions. Firstly, on Healthcare. The R&D spend in Q4 was a little higher than we were expecting. And I also -- sorry, at the group level. And I also see there was a restructuring charge of a similar size in Healthcare. So are those 2 related? Or is there any other reason why R&D was a little bit higher in the quarter? And then sticking with Healthcare, following the disappointment of bintrafusp in non-small cell lung cancer, I wonder if you could just remind us and update us on your activities and ambitions within non-small cell lung cancer? I noticed that that M1231 entered the clinic in January but doesn't yet seem to have made it onto the pipeline slide. So wonder if you could just tell us what else you're doing in that space.
Start with Marcus?
Yes. So first of all, please note that we wouldn't always have, let's say, one quarter in terms of and R&D spend exactly equally the other. So it can be that there are some fluctuations from quarter-to-quarter. And for sure, I mean, the R&D number in the first quarter contains a part of the provisions that we are building for the Healthcare transformation program for Bright Future, that is actually allocated to all of the cost lines and has, in a way, also inflated the R&D cost in Q4.
Yes. Thanks. Regarding the pipeline. So I think that the overarching statement statement is that we are highly committed non-small cell lung cancer. A couple of things to remember. First of all, still with bintrafusp, there is -- there are actually 2 ongoing trials in non-small cell lung cancer. This is something that you all know. Just to remind everybody, we are running a Phase III trial with avelumab with Bavencio that is supposed to read out towards the end of the second year of -- the end of the second half of the year. This is an event-driven study, studying actually a much more condensed dose or high dose of avelumab in this setting versus chemotherapy. Now the bigger hopes currently are for tepotinib recently approved in the U.S. So we we marked that for MEDX14 operations in non-small cell lung cancer. And we are very excited about the ongoing study that we have in met amplified patients of the resources, it's a combination with avelumab communications with the INSITE II study, which is recruiting right now. The field is highly interested in that because there's growing evidence for MET amplification is the reason -- the main reason for failure response to osimertinib that is growing in market share quite substantially. So this is another example of what we are doing in that field. To your question about the bispecific ADC, the MET 1-AGFR and M1231, this is another piece of excitement for us. And I think that we communicated that, and it's already a clinical trial outgo. We have first patient in this study several weeks ago. And one of the indications tested there is, again, on small -- non-small cell lung cancer. So I think that, from that perspective, we are highly committed to this deal. Time for the last question, please.
Perfect. And the last question for today comes from David Evans from Kepler Cheuvreux.
So just 2 questions on Healthcare, please. Firstly, on Bavencio in bladder cancer outside of the U.S. You did touch on this, but I wonder if you could just give us some insights into likely rates of reimbursements in different countries? And any other limiting factors once reimbursement is achieved? Ultimately, would you expect a reasonably fast launch uptake in markets once you get reimbursement? Or are there any notable limiting factors? Should we really expect any meaningful sales in bladder cancer in Europe for this year or at least in 2022, would you expect a significant level of sales from Europe? And then secondly, just on Glucophage, we didn't really see any notable dip in sales yet, but I was wondering if you could just give us some color as to what to expect this coming year for Glucophage, especially in China?
Peter?
Yes. So thanks, David, for the question. So first, your question on Bavencio. So as you rightfully said, we had approval on January 22 in Europe. Obviously, we're working diligently with -- in all the key countries to get, as soon as possible, the pricing and access procedures not only started but also finished. You know that, that takes time in most of the European countries. There are some exceptions to that rule, for example, Germany. So we are actually preparing for the launch in Germany as we speak, and we will roll this out in the next days. Same goes for Japan. And other countries, we try to leverage all, let's say, opportunities we have to further accelerate sales that will then come in 2022. As an example, we are participating at ATU in France. And I have to tell you also that the development of that ATU in France is extremely, I would say, interesting. Your second question on Glucophage in China. So indeed, we went into the VBP Round III. You know that all the metformins on that one were "Chinese" manufacturers. And we expect the full impact of this VBP in actually as of the first quarter of this year of 2021. Perhaps I remind you of 2 things. #1 is that the winners have access to 80% of the hospital population, meaning that 20% of the hospital population remains available to the non-winners, which is about 50% of the total market. And then there's another chunk of about 30% of the total market that is in the retail, I think, and that is, of course, not impacted by the VBP. So long story short is that Glucophage remains available to about 45% of the Chinese market. I also remind you that, of course, it's very, very strong tailwinds on the overall metformin market in China due to the diabetes epidemic that we are witnessing there, we will continue to profit from that tailwind from a market perspective. And then last but not least, Glucophage in China is only part, of course, of the overall base business. If you think about the overall base business, Glucophage, China is actually around about 5% of that total, right, because you know that the base business contains much more than actually only the cardiovascular metabolic and then the chronology fertilities in that bucket et cetera, et cetera, Erbitux is in that bucket. So that puts a little bit perspective to the Glucophage China question.
Thank you. Thank you. Over to you, Stefan, for closing words, please.
Thank you very much, Constantin, and thanks to everyone for your continued interest in Merck. And as you know, today is my last earnings call at Merck. So please allow me to end this on a personal note. I have had over the 10 years interactions with many of you, I guess, most of you, I mostly enjoyed these interactions. I learned a lot from you. This has never been a one-way street. We take very seriously, we've always taken very seriously what we hear from you, what the influencers are thinking. We value the exchange with you. So thanks for your critical questions and the many fruitful discussions we've had. You help me become a better businessmen, and Merck a better company. I'm retiring from Merck, not necessarily from business, and I would be surprised if one of the other of us would have contacts in future and -- with me in a different type of inclination. I wish you, sincerely wish you all the best, both personally and professionally. And thank you, again, and goodbye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.