Merck KGaA

XETRA:MRK

Q2-2025 Earnings Call

[Operator]

Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on Second Quarter 2025. [Operator Instructions] I now hand it over to Florian Schraeder, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir.

[Florian Schraeder, executive]

Thank you very much, Heidi, and heartfelt welcome to the Merck Q2 '25 Results Call. I am Florian Schraeder, the Head of Investor Relations at Merck. It is my pleasure to be joined today by Belen Garijo, our Group CEO; and Helene von Roeder, our Group CFO.

For the Q&A segment of this call, we will also have Jean-Charles Wirth, CEO Life Science; Danny Bar-Zohar, CEO of Healthcare; and Kai Beckmann, CEO Electronics, with us. In the initial minutes of this call, we will guide you through the key slides of the presentation. Following that, we will be glad to address your questions.

With that, I would like to hand it over to Belen to begin.

[Belén Garijo López, executive]

Thank you, Florian. Welcome, everybody, to our Q2 earnings call. And before starting with the highlights of the quarter, I'm happy to remind everybody that we just announced the closing of the divestiture of Surface Solutions last week. The closure of this transaction will allow us to sharpen our focus on high-tech application within electronics. So that is an important milestone achieved recently. And this comes just 1 month after we closed the acquisition of SpringWorks in a record time, immediately accelerating the growth of health care and securing the sustainability of our health care pillar in the mid- to long term. So we are actively working on and executing our portfolio composition to enhance Merck's position as a globally diversified science and technology company with attractive growth.

Returning to the quarter, I'm now on Slide 5 of the presentation to go through the highlights. The global economic landscape continues to change very rapidly this quarter, generating some volatility across various business sectors and regions. We continued to sustain our organic sales growth momentum in this challenging environment, even though these economic conditions are also affecting to a certain extent, some of our business sectors. Organically, our group sales increased by 2% and EBITDA pre went up by 5%. We, therefore, continued to grow profitably on an organic basis. Healthcare and Life Science showed the strongest organic sales growth at 4% each, while Electronics sales were down organically by minus 6%, driven mostly by the DS&S business.

The highlight of the quarter was the acceleration of the organic sales growth momentum in Life Science. And this is driven by Process Solutions, which once again delivered 11% against rising comparables. The very strong order intake growth continued, and the book-to-bill ratio was again comfortably above 1. Sales in Healthcare grew organically by 4%, driven by double-digit growth of Mavenclad, solid growth of 5% in our CM&E portfolio as well as double-digit growth of Erbitux, respectively.

Moving into Electronics, we observed an organic decline of 6%, and this is primarily attributable to our DS&S delivery systems and service business within Semiconductor Solutions, which experienced a decline in the low to mid-double digits in relation to big project phasing. Semiconductor materials continued to grow this quarter driven by our strength in artificial intelligence and advanced nodes.

Turning to our guidance. We are now narrowing our organic sales growth range to plus 2% to plus 5%, staying within our previously communicated guidance -- communicated range. Reported sales have been adjusted to mostly reflect the currency impact. We are also maintaining the midpoint of our absolute EBITDA pre guidance range despite increasing headwinds from FX and despite negative portfolio effects from the SpringWorks acquisition as well as the divestiture of Surface Solutions as we have lifted our organic growth guidance on EBITDA pre to plus 4% to plus 8%. Therefore, we now anticipate net sales in a range of EUR 20.5 billion to EUR 21.7 billion and EBITDA pre of EUR 5.9 billion to EUR 6.3 billion. Hence, we are committed to growing even more profitably than we have forecasted previously. I will provide more details on our assumptions for the guidance at the end of this call.

So let's now turn to Slide 6 for an overview of our performance by business sector. Organic sales growth in the second quarter was 2%, plus 2%. With organic sales growth of 3.7%, Life Science was the largest contributor this quarter, driven once again by the stellar performance of Process Solutions. Healthcare delivered 3.6% organically, organic growth with Mavenclad, our CM&E portfolio and Erbitux having been the key drivers. Electronics was down by minus 5.6% organically as the growth of semi materials was not able to offset the decline in our DS&S business. For the group, and as we predicted, FX now turned into a headwind of minus 4.2% in Q2 after having been a slight tailwind in Q1 2025. FX was a mid-single-digit percentage headwind for all business sectors during the quarter. Together with a portfolio effect of plus 0.4% for the group in Q2, driven mainly by the acquisition of Unity-SC, group sales -- reported group sales declined by minus 1.8% in Q2.

It is important to note that we closed the SpringWorks acquisition on July 1. Hence, there is no SpringWorks revenues in Q2. Regarding earnings, EBITDA pre amounted to EUR 1.462 billion, growing organically more than twice as fast as sales and delivering plus 4.6% organic growth compared to the year earlier period. Currency also had a negative effect on EBITDA pre, which was more pronounced than on sales at minus 7.2%. The portfolio effect was slightly dilutive on EBITDA pre.

And with this, let me hand it over to Helene for a more detailed review of the financials of Q2.

[Helene von Roeder, executive]

Thank you very much, Belen, and a warm welcome from my side also. I'm now on Slide 8 for an overview of our key figures in the second quarter. Net sales decreased by 1.8% to EUR 5.255 billion as FX was a headwind of minus EUR 227 million. Portfolio effects were a slight tailwind in Q2 of plus EUR 23 million. EBITDA pre was down by 3.1% to EUR 1.462 billion, while EBITDA pre was up 8.8% year-on-year in Healthcare, it was down by minus 1.3% in Life Science and 47.6% in Electronics. The decline in EBITDA pre in Electronics was mainly due to 2 nonrecurring items we recognized in our second quarter results as well as foreign exchange headwinds.

I will provide more details later during the presentation. FX was a stronger headwind on EBITDA pre than on sales, while portfolio effects had a slightly dilutive impact on EBITDA pre. EPS pre declined by 8.2% to EUR 2.02 per share. The decline in EPS pre was higher than in EBITDA pre, which was primarily driven by a more negative financial result. This, in turn, was mainly due to tax items in the financial results amid a lower interest income, in turn reflecting lower cash balances. Operating cash flow decreased to EUR 567 million. The decline was mainly driven by higher tax and bonus payments. Net financial debt increased by EUR 818 million compared with the end of December '24 and reflecting the payment of our dividends.

So let me also briefly comment on our reported results. And with that, I'm now on Slide 9. EBIT was up by 12.4% year-on-year. This was higher than the increase in EBITDA pre due to mainly a decrease in D&A from a high level in Q2 '24. Now as a reminder, we took the impairment on Xevinapant in Q2 of last year. The financial result declined significantly by minus EUR 55 million from minus EUR 7 million to minus EUR 62 million due to primarily a more negative interest result. This reflects tax items as well as a reduction in interest income on a lower cash balance. The effective tax rate came in at 21.0%, which is actually at the lower end of our guidance range of 21% to 23% and below the effective tax rate of 22.9% in the year earlier period.

The tax rate usually fluctuates over the quarter during the year. For the first 6 months of '25, our effective tax rate stands at 21.9%, which is right in the middle of our tax rate guidance. As a reminder, please be aware that this year is a year of additional uncertainty with all of the debates around tax and tariffs. Reported EPS came in at EUR 1.50, which is an increase of 7.1% year-on-year, which is below EBIT growth as it reflects the more negative financial results compared with the year earlier period.

And with that, let's move on to the review by business sector, and I'm starting with Life Science on Page 10. Life Science grew organically by plus 3.7% in Q2. This does represent a further acceleration compared with the previous quarter as Process Solutions kept its momentum and Science & Lab Solutions showed improving momentum. So turning to Process Solutions first. Sales grew by 11.5% organically in the second quarter. Therefore, it maintained its growth momentum from the previous quarter, which is now compared against a growing base. Customer destocking is finally now behind us. Order intake continued to show very strong growth and book-to-bill was at similar levels compared with the last 2 quarters, staying comfortably above 1. We have not seen any significant preordering effects in Q2 '25.

Now let us take a closer look at Science & Lab Solutions. Sales were flat organically. While U.S. policy changes continue to affect academic and government lab spending, we did see some green shoots with our pharma and larger biotech customers. We increasingly feel comfortable to move towards our midterm growth aspiration of a low single-digit to mid-single-digit organic growth in Science & Lab Solutions by Q4 of this year. In Life Science Services, sales were down 8.2% organically, which was primarily due to an approximately low teens percentage decline in our Contract Testing Services business due to demand fluctuations from key customers. Additionally, Q2 '25 faced the highest comparison base from '24.

Our CDMO business was organically up in the quarter, excluding a sales effect in connection with the disposal of the [indiscernible] site, which was closed on August 1. EBITDA pre increased by 3.7% organically in Q2, in line with organic sales growth. The positive operating performance and mix effects were offset by production cost phasing. While our EBITDA pre margin was flat year-on-year on an organic basis, both FX and portfolio effects were dilutive.

And with that, I'm now on Slide 11 for an overview of the performance of the Healthcare business sector. Healthcare again delivered solid organic sales growth of 3.6% in Q2, which is very similar to what we actually saw in Q1. By franchise, our CM&E portfolio was the largest contributor to growth in Healthcare. It was up 4.7% organically and in line with our medium-term growth ambition of a mid-single-digit CAGR. We saw organic growth across all therapeutic areas. Oncology was up 3.9% organically in Q2, 10.9% organic growth of Erbitux and 41.4% growth in Tepmetko more than compensated for the anticipated decline of Bavencio, which was down minus 12.1% in Q2 in a competitive environment. Almost all regions contributed to the growth of Erbitux, although we saw China slowing.

Tepmetko mainly benefited from very strong demand in North America and APAC, including benefits from a recently signed distribution agreement. Our N&I franchise grew by 2.6% organically in Q2. Declines of Rebif in line with the interferon market were more than offset by Mavenclad, which delivered a stellar growth of 20.7% organically. This was mainly driven by North America and supported by positive channel mix. Fertility sales were down by minus 3.4% in Q2 against the still elevated comps reflecting prior year competitor stock-outs and amid a slightly softening market.

Regarding our pipeline, detailed results of -- from Part 1 of the Phase III MANEUVER study were presented at the ASCO Annual Meeting, showing pimicotinib significantly improved objective response rate versus placebo at the primary endpoint and all key secondary endpoints. Merck holds the rights to commercialize pimicotinib worldwide, and we intend to launch in 2026. Also at ASCO, we presented Phase Ib data for M9140 with its efficacy and safety encouraging further development of this anti-CEACAM5 ADC. The robust organic sales growth in Q2 in combination with temporarily lower R&D spending and a favorable mix helped us to achieve an EBITDA pre margin of 37.2% in the quarter. Compared with the year earlier quarter, our EBITDA pre margin improved by 350 basis points, implying organic growth of plus 20% in part also due to a soft comp, including a mid-double-digit million euro R&D impairment last year. Overall, EBITDA pre amounted to EUR 783 million in Q2.

On the further evolution of our R&D spending, let me remind you that we expect underlying R&D costs to increase gradually over the coming quarters, both in absolute terms and as a percentage of sales. Adding SpringWorks on top, we expect the R&D ratio in H2 to be around 20% of sales.

So let us move to Electronics on Slide 12. Organically, sales went down by minus 5.6% in Q2 as Semiconductor Solutions declined by 5.6% organically. The key reason is the performance of our DS&S business within Semiconductor Solutions, which declined by more than 30% organically in Q2. Semiconductor materials continued to grow in the quarter at a low single-digit rate against stronger comps. Following the divestiture of Surface Solutions, this business now accounts for around 2/3 of our Electronics sales. Despite this, it was not able to offset the significant decline of our DS&S business in Q2, where customers have informed us that projects have been pushed out even further. AI and advanced nodes continue to drive the growth of semiconductor materials. However, a near-term recovery of the wider market, especially in NAND and memory is still not in sight. Our Optronics business was down 5.3% organically in Q2 but showed slight growth of plus 0.3% on a reported basis, including the consolidation benefit of Unity-SC. Surface Solutions was down minus 6.4% organically, which was mainly due to weaker cosmetics demand.

I'm sure you have seen our announcement of the divestment of Surface Solutions closed on July 31. Hence, Q2 was the last quarter in which we fully consolidate Surface Solutions. The EBITDA pre margin decline of minus 41.3% organically in Q2 was impacted by 2 special onetime effects. First, we recognized a onetime noncash adjustment of a PPA entry related to manufacturing know-how from the 2014 acquisition of AZ Electronic Materials, which amounts to a low double-digit million euro amount. This entry properly reflects the expired useful life of the know-how associated with the original PPA entry and does not reflect our ongoing operating performance.

Furthermore, a provision in the mid-double-digit million euros was recorded for customer compensation related to a historical supplier mislabeling that caused a pricing issue. There were no quality concerns and the customer relationship remains strong with ongoing orders. We are seeking appropriate remedies. Both items had a combined negative effect on our EBITDA pre margin in Electronics around minus 7 percentage points. Additionally, other elements, mainly the significant decline in our DS&S business and FX further reduced the margin by around 4.5 percentage points. Overall, the EBITDA pre margin was 15.1% in the quarter, and that equates to an EBITDA pre of EUR 134 million. For the further margin evolution during the remainder of '25, please do note that we sold Surface Solutions, which had a margin dilutive effect of Electronics. I also want to stress that the 2 previously described special effects recorded in our Q2 results were limited to Q2 and will not recur.

Before handing back to Belen, let me also briefly comment on our balance sheet and cash flow statement. As you can see on Slide 13, our balance sheet decreased by EUR 4.2 billion compared with the end of December 2024. Let's take a closer look on the asset side. Cash and cash equivalent went down to EUR 1.2 billion from EUR 2.5 billion at the end of December '24 due to the repayment of a U.S. dollar bond, which took place in March of this year. Inventories were stable, while receivables went up by EUR 300 million following a quarter of strong cash collection at the end of last year. Property, plant and equipment decreased by EUR 300 million due to mainly FX translation differences. Intangible assets decreased by EUR 2.6 billion due to FX effects and D&A. And lastly, other assets were down by EUR 300 million due mainly to divestments and revaluation effects.

Switching to the liability side. Financial debt decreased by EUR 900 million, reflecting the repayment of the U.S. dollar bond in March this year. This was partially offset by a decline in other liabilities, in turn, affected by the dividend payments in Q2. Pension provisions were down, which was driven by actuarial gains. Payables decreased from EUR 3.1 billion to EUR 2.9 billion as we saw declines in current payables across our 3 business sectors. And net equity decreased by EUR 1.7 billion as the increase in retained earnings was more than offset by FX differences, mainly resulting from the weakening of the U.S. dollar. In summary, our equity ratio strengthened further from 58% at the end of December 2024 to 60% at the end of Q2. It did decline slightly from 61% at the end of Q1 this year following the payment of the annual dividend.

Turning to cash flow on Slide 14. Operating cash flow went down from EUR 861 million in Q2 of last year to EUR 567 million in Q2 '25. This was mainly due to changes in other assets and liabilities, driven in turn by higher bonus payout and tax cash outs in the quarter. The increase in tax cash-outs mainly reflects the phasing of a tax payment in Switzerland, which occurred in Q2 of this year as opposed to Q3 of last year. D&A experienced a notable year-on-year decline this quarter, primarily attributed to the absence of last year's EUR 140 million impairment associated with Xevinapant and a decrease in the amortization of acquired intangibles. This reduction is not entirely reflected in the increase in profit after tax due largely to a year-on-year decline in financial results and significant currency headwinds that impacted our sales and in return, profits.

Cash-out for investing activities increased by EUR 113 million, which mainly reflected the payment to Abbisko for the global commercialization rights of pimicotinib. Last but not least, the difference in financing cash flows driven by proceeds from short-term investments in the quarter.

And with that, let me hand back to Belen for the outlook.

[Belén Garijo López, executive]

All right. Thanks, Helene. And let's now turn our attention to our updated guidance on Slide #16. Reflecting on my earlier comments regarding currency impacts, we have now included a stronger currency headwind, which stands as no surprise. On group net sales, we now factor in an expected FX headwind of minus 5% to minus 2%. Consequently, we are revising our 2025 reported corridor for group net sales to a range of EUR 20.5 billion to EUR 21.7 billion. Our organic net sales growth guidance is set at plus 2% to plus 5%, staying, as I said before, within the previously communicated range.

Turning to our EBITDA pre and despite the increasing FX headwinds, as well as the estimated negative portfolio effects of minus EUR 120 million to minus EUR 80 million resulting from the acquisition of SpringWorks as well as the divestment of Surface Solutions, we are maintaining the midpoint of our absolute EBITDA pre guidance and narrowing the range to EUR 5.9 billion to EUR 6.3 billion. We have also raised our organic growth corridor for EBITDA pre to plus 4% to plus 8%, up from plus 2% to plus 7%. Furthermore, despite the inclusion of SpringWorks, we are guiding for an EPS pre range of between EUR 8 and EUR 8.70, slightly reducing the midpoint only by EUR 0.10. Our guidance accounts for the full impact of tariffs based on our current knowledge.

Please go to Slide #17 for additional color by business sector. Starting with Life Science, we are upgrading our organic sales growth guidance, now projecting a range of plus 3% to plus 6% for 2025, leaning towards the upper half of the previous corridor. We anticipate that Process Solutions will come in line with the midterm target of a CAGR of around 10% growth already in 2025. We expect EBITDA pre to demonstrate organic growth between plus 3% and plus 7%, thereby adjusting and elevating the lower half of our guidance range. This upgrade aligns with our narrowed top line guidance, and we are confident in delivering an improvement in organic EBITDA pre margins in 2025 as indicated by the midpoints of our guidance ranges.

Moving on to Healthcare. We are narrowing our guidance for organic sales growth to a range of plus 3% to plus 5%, maintaining the midpoint. Key contributors to this organic sales performance remain our CM&E portfolio, Mavenclad and Erbitux. We also expect a contribution to net sales from portfolio effects in the amount of EUR 170 million coming from the acquisition of SpringWorks. We are pleased with the Q2 performance of SpringWorks. Ogsiveo had USD 67 million sales in the quarter, which is up 52% quarter-on-quarter and the strongest quarter since launch, while Gomekli generated USD 15 million sales in the quarter. Our guidance for EBITDA pre organic growth is being raised to plus 9% to plus 13% driven by robust leverage growth, coupled with disciplined cost management and the divestment of an FDA priority review voucher, which we agreed at the end of July and which impacts the earnings of the healthcare business sector in a mid-double-digit million euro amount in the second half of the year.

For Electronics, we are revising our forecast down for organic sales growth to a range of minus 5% to minus 1% and this primarily reflects further delays in customer projects now moving beyond 2025, which impact our DS&S business. While we expect Semi Materials to deliver continuous growth in 2025, this growth will not compensate the anticipated decline in our DS&S business. DS&S phasing along with the nonrecurring one-timers from Q2 has led to reduced expectations in our organic growth guidance for EBITDA pre, now expected to be in a range of minus 15% to minus 7%. While not included in the guidance update I just presented, I would also like to highlight that we have adjusted down corporate and other EBITDA pre guidance from EUR 500 million to EUR 550 million to EUR 350 million to EUR 400 million. This adjustment is mainly driven by hedging gains and also due to a mid-double-digit euro million onetime impact driven by changes in local regulations in Latin America.

Overall, Q2 has been a robust quarter in which we once again delivered profitable organic growth despite a continuously challenging macroeconomic environment. On top, we executed 2 major strategic milestones, the closing of SpringWorks and Surface Solutions, and we stay highly confident to deliver an even stronger profitable organic growth in 2025 than expected before.

And with this, thank you so much for your attention, and we will be happy to start taking your questions. Florian, over to you.

[Florian Schraeder, executive]

Thank you, Belen and Helene for guiding us through the slides. I will now pass it over to Heidi, who will facilitate the Q&A segment of the call.

[Operator]

[Operator Instructions]

And your first question comes from the line of Sachin Jain from Bank of America.

[Sachin Jain, analyst]

I just have one on each division, please, if I may. So firstly, on Electronics, any color on how long the projects are delayed within DfS? So how long should we think about that impact? And if you could just give a bit more color on the broader macro outlook where you commented recovery not in sight. Just trying to get a sense of what your forward visibility is and therefore, any early thoughts into '26.

On Healthcare, just thoughts on the Mavenclad IPR outcome and how that may impact guide for '25? And then thirdly, on Process, just any commentary on how growth rates exiting 2Q and July trends. There's been some industry commentary of more recent softness. It doesn't feel like you're seeing that, but just wanted to confirm.

[Belén Garijo López, executive]

Thank you, Sachin. We will start Kai with Electronics.

[Kai Beckmann, executive]

Yes. Sachin, this is Kai speaking. Thanks for the electronics question. On DS&S, we will update once we get more clarity on when the projects start -- restart again when they resume implementation currently for the second half, we only took what we already have really fixed and confirmed after the conversations of the past quarter in a very conservative way to not kind of overestimate what's happening in '25. So let's look into what then may happen in '26. On the broader picture, Sachin. So by the end of the year, Electronics will be shaped with the shape portfolio focus on Electronics businesses only. There is -- Surface is out. Unity is then fully in from November onwards.

We will be a sector exclusively focused on the electronics industry. The materials side, you will see growing at high single-digit rate. This is what you can see in our guidance, what we expect. And that is then 2/3 of our portfolio. So 80% of electronics is semi and 80% of semi is materials. So 2/3 being materials growing at this rate. And the market projections do not show any indication that deviate from our earlier expectation. On the materials side, well intact going into 2026.

[Danny Bar-Zohar, executive]

Sachin, it's Danny. Regarding the IPR. So first and foremost, we remain very confident about the LOE base case that we communicated for Mavenclad, which is October 2026. And indeed, on July 11, it was, there was a Court of Appeals for the Federal Circuit hearing and hearing what happened there, just hearing the discussion, I would say, keeps our confidence in the October 2026 rather high. And you spoke about 2025 forecast. So you saw the stellar growth for Mavenclad in the second quarter. And for the full year, we expect similar to what we saw last year, which is double digit, low to mid-teens. And even if in the highly unlikely scenario in our case that we are hit by generics, the impact would be, I would say, super limited and well within our guidance.

[Jean Wirth, executive]

And Sachin, Jean-Charles speaking. We are not disclosing any performance of Process Solutions in July. That said, what I can tell you is we are looking for solid performance in 2025 for Process Solutions. And we are now feeling very confident to reach our midterm organic growth aspiration of a CAGR, which is around 10% for this year.

[Operator]

We will take our next question and your next question comes from the line of Sophia Graeff Buhl Nielsen from JPMorgan.

[Sophia Graeff Buhl Nielsen, analyst]

A couple on Life Science. So just firstly, on SLS, how has the U.S. academic and government performed in Q2 relative to your initial expectations? And how do you expect this segment to perform for the rest of the year and into 2026? And then just one on Process Solutions. So what has driven the very strong order intake you saw this quarter? Have you seen this pick up sequentially? And are you expecting book-to-bill to remain above 1 for the rest of the year?

[Jean Wirth, executive]

Thank you, Sophia. So Jean-Charles speaking. I will start by answering the question on SLS and afterwards, I will shift to PS. So let me start to mention that our current lab market conditions are certainly challenging. And I would like to give you some example. You mentioned U.S. Yes, our academic customer remain cautious due to the high level of uncertainty linked to the U.S. policy changes. That said, I also want you and our participants to keep in mind that we have limited exposure to NIH, roughly 10% of our portfolio. Nevertheless, it's true that Q2 was impacted in U.S. On top, when I say changing market condition, I would like also to highlight China. China remains muted. And I would like also to mention the behavior of some pharma customers, which continue to closely monitor their expense, especially concerning early research activities.

That said, we expect to see a gradual recovery in pharma discovery in the near future. I also want to repeat what Helene said, we are seeing green shoots in some customers in 2025 in Q2, and we are also seeing some positive development in pharma quality control. So this is the situation we are dealing with. But under this condition, we have continued to execute on our strategy, and I would like to provide you 2 concrete examples. The first one is on innovation. Earlier this year, we announced the acquisition of Hub Organoids. And right now, we are bundling Hub Organoids with our [indiscernible], which is a cutting-edge tool for rapid and objective cell culture measurements. And I will say the first sentiment from our customer is extremely positive.

Another example on our execution on our strategy is around our multi-omnichannel. We are selling through our direct sales force, our dealers and our e-commerce. And yes, we are making good strides. So when you combine the current market condition plus our very clear strategy and execution, we are performing quite well, I would say, in the market. We have been flat in Q2. And I would like to mention that I see the SLS business as a very resilient business. So looking forward, we expect to show an organic growth towards our midterm guidance in SLS of low single to mid-single digits by year-end.

I shift to Process Solutions. So on Process Solutions, you asked about our order intake. First of all, I want to take the opportunity to mention that over the last months, we have, let's say, improved our quality of reporting related to order intake. I mean, in terms of tracking processes, we're at a stage now where we could find any type of information related to our order intake, and we can slice and dice our information by customer, region, portfolio, et cetera. So we are quite confident with the quality of our data. To answer your question, we don't see any pull of order in Q2. We are also confirming and we are believing that the customer destocking is now behind us. And to your last question concerning book-to-bill ratio, we feel comfortable to have a book-to-bill ratio above 1. It has been the case in Q4 2024. It has been the case in Q1 2025 and it's still the case in Q2 2025. So overall, for Process Solutions, as I just said earlier, we are now comfortable and we feel confident to reach our midterm guidance for the full year around 10%.

[Operator]

Your next question comes from the line of Matthew Weston from UBS.

[Matthew Weston, analyst]

If I can just follow on from the last question on bioprocess demands. I think you answered it, Jean-Charles, but just to be double clear, with the new visibility that you have looking into your customers, are you confident that they are not accelerating manufacturing ahead of U.S. tariffs. So we're basically seeing a pull forward that will then -- we'll see that next year as a slowdown, but that this is really sustainable growth? And would you actually have that visibility?

And then the second one, I don't know whether it's a question for Danny or Helene. Irrespective of the debate on timing from Sachin's question, we will soon see Mavenclad U.S. patent expiry. I think most of us would assume that a $45,000 small molecule is extremely profitable. but I'm aware you also have a neurology sales force attached to that. So can you help us understand the relative profitability of Mavenclad in the U.S. versus your normal health care margins so that we can plan for the midterm and the gradual loss of Mavenclad in the model?

[Jean Wirth, executive]

Matthew, Jean-Charles speaking. So to keep it short, we are confident in the quality of our order intake. And just to give you some flavor, in Q2, I said that we didn't see any pull forward at global level. We have such detailed level of information that early April, we saw some in China, but the value was negligible at global level. So overall, the key message is, yes, we feel confident.

[Danny Bar-Zohar, executive]

Matthew, it's Danny. Regarding the question on Mavenclad. So again, as I said before, the base case for us is October 2026 as the loss of exclusivity in the U.S. and a staggered one between the summer of 2027 and 2030 in Europe based on SPCs in different countries. So this is not going to be an abrupt decline globally. This is one thing. The decline when it comes, will be profitable. We will manage it. Just to remind you, we are building sales forces also in the U.S. and outside of the U.S. for SpringWorks, and this will be managed properly.

[Operator]

Your next question comes from the line of Falko Friedrichs from Deutsche Bank.

[Falko Friedrichs, analyst]

My first question is also on Process Solutions. Could you give us a little bit more flavor on the orders and sales developments for consumables versus equipment, what you've seen here in the recent quarter? Then secondly, in your group guidance, was there any change in the tariff assumptions that are embedded versus the initial guidance with Q1? And then thirdly, a quick one for Kai. Can you provide a bit more color on what exactly this labeling issue was that happened?

[Belén Garijo López, executive]

So let me start with the group guidance to confirm that anything that we have in our hands today is included in our guidance and that there are no significant changes versus what we communicated in Q1.

[Jean Wirth, executive]

Jean-Charles speaking related to the first question, Falko. Very high level, if you look at our portfolio today, roughly 90%, 9-0, 90% of our portfolio in Process Solutions is consumable driven.

[Kai Beckmann, executive]

Yes, Falko, on the electronics question. So there were wrong labeled products by a supplier that have led to an overcharging of our customer over the past 15 years, which we then have compensated for now we are seeking remedies as a supplier for the damage.

[Falko Friedrichs, analyst]

Okay. If I can very briefly follow up to the Process Solutions question. Could you add more flavor on what you saw in the 10% that is the equipment portion in terms of demand and orders?

[Jean Wirth, executive]

I mean it's limited, Falko. It's really a limited number. As I said earlier, the large part of our portfolio is linked to consumables today.

[Operator]

And the next question comes from the line of Charles Pitman-King from Barclays.

[Charles Pitman, analyst]

Charles Pitman-King from Barclays. Just one quick one to start off with just your corporate and other EBITDA pre guidance. I was just wondering if you could give us a bit more detail on what those local regulation changes are and if you can provide any more quantification to that mid-double-digit impact. Then just secondly, on Ogsiveo outlook. So within the desmoid tumor space, I was wondering if you could talk a bit about your expectations for potential competition given competitors such as AL102, which is so far illustrated apparently superior Phase II data and is set to report Phase III in 2H '25. Just wondering how you're thinking about Ogsiveo's likely treatment position should AL102 outperform its data?

[Helene von Roeder, executive]

So on the regulation, what I can say is like it is in Latin America. There has been a change in law, and it actually has impacted all of our sector, which is why you're seeing this impact in the corporate line.

[Danny Bar-Zohar, executive]

This is Danny. Thank you for the question on Ogsiveo. And first and foremost, we are very excited, as Belen said at the beginning about a relatively fast completion closing of the deal on July 1, and you saw the numbers for the second quarter, which are super strong. Now we see a very high demand and continuous demand for the drug, which makes us very, very encouraged by the performance, particularly in the U.S. This is where the drug is currently launched. And regarding competition and a little bit to guide you on the challenges and the market. You mentioned AL102, and we did factor it in, of course, since the very early days of our due diligence and the commentaries that we heard are mainly coming from its Phase II data in, I would say, much limited number of patients.

Now one thing with all of these things said, one thing that I believe is important for me personally to leave you with that is that we are taking AL102 super seriously. Why? Because it is the same mechanism of action of Ogsiveo and hence, we expect it to work. And I also want to separate between what all of us know about the compound and also how serious we are already taking it in terms of the education of our field teams, scenario building, market shaping and on top of that, how we modeled it into our assumptions. Now obviously, we cannot provide you with the numbers that we plugged into our assumptions, but you should remember it's also the prevalent population, talking about those 30,000 patients in the U.S. roughly with huge potential to address those who are currently limboing between wait and see and yes or no surgery. So there is a huge potential there.

And now the model that we based our valuation and the direction that we have given once we closed the deal or once we announced the deal for peak sales of around $1 billion includes both the competition very seriously as well as, I would say, a much more conservative patient pool than the 30,000. Now when we go to Ogsiveo, hazard ratio of 0.21 on PFS with median not reached and a 2 years landmark of 76% progression-free, we believe that this is a very high bar as itself. We -- and AL102, can AL102 be 72% or 80%? Yes, of course, but this is the same class. Second one is toxicity. We also got the, I would say, thoughts or the commentary around the potential for less ovarian toxicity with Ogsiveo. Obviously, we take that super seriously because these patients need to stay on drug. It's a chronic treatment. It's not a malignant tumor.

And what I can tell you today from real-world rates of discontinuation for any reason on Ogsiveo, this rate is quite low and resembles very much what we saw in the DeFi trial where patients more and more learn to manage their adverse events with label approved dose adjustment, et cetera. And when it comes to -- specifically to ovarian and toxicity, the vast majority of these cases are reversible either on drug or off drug, so patients know how to manage it. So we are not taking it lightly. It's the same mechanism of action. It will work. We have a first-mover advantage. As I said, there is a strong adoption that continues across all sites of care. We're very pleased that the total number of Ogsiveo prescribers continues to grow month-over-month, and we have a strong base of physicians who have, I would say, very positive experience with Ogsiveo since its approval late '23.

And just to give you a little bit of flavor, in the first half, centers of excellence account for approximately 1/3 of the ordering accounts and about 2/3 of the total volume, and we are expanding. If you understand these numbers, you can -- if you hear these numbers, you can understand that we are much beyond already in terms of the centers. So very excited about this and looking forward to share more at the Capital Markets Day on that.

[Operator]

Your next question comes from the line of Shyam Kotadia from Goldman Sachs.

[Shyam Kotadia, analyst]

Two from me, please. First one on Electronics. So just a bit of color on the margin going forward. So the midpoint of your guide for full year '25 implies around 23%. So it implies an acceleration in the second half to around 26% mark. What's driving this? Is it just the removal of the lower-margin Surface business? Or is there something else underlying that you're anticipating? And then how should we think about a normalized margin going forward for Electronics, excluding surface? Will it be the exit margin around 26%? Or could we expect this to increase going forward towards the high 20s and low 30s once you're past the negative impact of DS&S? That's the first question.

Second question is on SpringWorks. So on the top line, based on your guidance portfolio effect for Healthcare, you've guided to around EUR 170 million for second half '25. But looking at Ogsiveo and Gomekli sales for first half '25, you got around EUR 80-odd million. So that implies pretty flat sequential growth on a quarter-by-quarter basis and the 2 relatively new launch assets. So again, could you confirm why this is the case, especially if you mentioning that Ogsiveo is growing pretty well and if there's any volatility that we should be aware of?

[Kai Beckmann, executive]

Starting with the margin question, electronics. So where do we start from in Q2, you got a 7% impact of the one-timers. We got a 1% impact of the currency and then a quite a significant mix impact that explains the bridge to the previous year mix impact from DS&S because of the known reasons. So a lot of that goes away in the second half and brings us then closer towards the high 20s range again. So this is the way forward. There will be a dilution of the ramp-up cost effect that we still have in our books, and there will be, of course, a positive contribution of our very strong [indiscernible] business with a positive mix impact helping to bridge from where we are today to drive by volume growth and acceleration of leverage and with that a better margin profile towards the end of the year. So that's the expectation for the second half.

[Danny Bar-Zohar, executive]

It's Danny. Regarding SpringWorks. So as I've said before, we are super pleased with how the launches of Ogsiveo and Gomekli. Gomekli is first days are moving forward. For both products, there is a very strong demand. The EUR 170 million that you mentioned for the second half includes both products. So it's not just one of them. So it's a combination of both. And we have it under our belts for 2 months now. We are very encouraged with what we see. I think that what we are committed with the EUR 170 million is very consistent with the month-over-month growth, as we mentioned before. And if there are additional updates for that, and we are working on that, we'll give them at the Capital Markets Day.

[Operator]

The question comes from the line of Oliver Metzger from ODDO BHF.

[Oliver Metzger, analyst]

The first 2 ones are on Process Solutions and the first one is a follow-up on Falko's question. Yes, even we know that equipment makes up 10% only of Process Solutions. But can you give us an indication how the demand of equipment has worked? Is there already some normalization seen? Then also in Process Solutions, can you talk about the demand across the different modalities? And the last one is on Electronics. So on DS&S, you talked in the past about different cycles like infrastructure first, then equipping the fabs. Now it looks like a complete stop of customer orders, which reminds us technically the situation during the financial crisis. So while visibility for these orders is still very limited. But can you describe how the recovery might look like? Does it start first with infrastructure again? Or is the infrastructure still in place and the current stop is related more towards equipment? And also in this context, how much the macro conditions be or what needs to be fulfilled before we see a turn to a better? That's only.

[Jean Wirth, executive]

Oliver, Jean-Charles speaking. Let me try to answer to the first 2 questions on Process. The first one was about our equipment. As I said, roughly 90% of our portfolio is consumable related. So we don't have a lot of information to share on equipment. On your second question on the demand, we are marching towards more the traditional modalities that the novel modality. So you should assume that traditional is closer to our core business.

[Kai Beckmann, executive]

So on the DS&S question, Oliver, just be reminded on the 3 elements of DS&S. We got the services business, which is stable to growing. We got the equipment business, which is kind of a normal sales of new equipment used for new materials. Specifically here, I want to remind you on the molybdenum precursor, which requires a very specific delivery technology. That's a very important part. And then on top, we have turnkey as well as equipment business linked to large projects and some individual large projects. And we had in the past years, unusual amount of large project business that has peaked that business quite significantly, which is now kind of going back to normal levels. And here, we had kind of a very short notice period on the significant delays of these projects, and this is what has caused difference in our expectation as you can see. But the underlying business, very important to remember, important, strategically important, high tech and as well on a long-term growing business.

[Operator]

The next question comes from the line of Simon Baker from Rothschild & Co Redburn.

[Unknown Analyst]

This is [ Ben ] speaking on behalf of Simon Baker. I have 2 questions, if I may. The first question is on the Science & Lab Solutions. Is the U.S. NIH impact more modest than expected? Or is it still too early to see the full effect? And the second question is on the one-off items. It looks like the EBITDA pre miss was entirely down to the one-offs in Electronics. Can you quantify a little more than in the press release, please?

[Jean Wirth, executive]

Jean-Charles speaking. Let me try to answer to the first question on SLS. So we have very modest exposure to NIH funding. Again, if I link it to the question -- the previous question on Process Solutions hardware versus equipment, or equipment versus consumable, I should say, you should assume that we have the same split in the lab business. So as such, we have limited exposure or modest exposure to NIH in U.S.

[Helene von Roeder, executive]

So maybe let's just zoom out for a moment and take the big picture because I know this is a messy quarter and quite hard to model. But if you look at it, it's like we had 2 negative items this quarter, which came from Electronics. One was low double digit, one was mid-double digit and in some, it's mid-double digit. One of them we explained, it is basically a reserve we had to take for customer claims. But of course, we will turn around and ask our supplier to compensate us for the damages. What you need to know, of course, if you look at the accounting, the reserve for the customer claims need to be booked immediately, but the remediation from a supplier can only be booked virtually actually if the cash is in the bank. So that's the first one you need to look at.

And let me tell you, it is really truly nonrecurring items, basically dating back more than 10 years ago. Second, you then have the upside, the positive. One is, if you look at the full year, the disposal of the PRV voucher, which also is a double-digit positive on the EBITDA side. And you have this item we talked about, the corporate side in Latin America. Both of them will come now in the third quarter. And on top of that, you have the negative again from FX. If you sum all of these up, you get to the situation where it's plus/minus 0. sorry, speaking German. So that means if you then look at our EBITDA upgrade, you can see actually the strength of our business and what we have actually done here because we additionally are compensating for the downside that SpringWorks will bring into Q3 and Q4. So I hope that gives you some color of how we are looking at the situation and help you sort through a little bit through the mess that we are seeing in Q2.

[Operator]

The question comes from the line of Dylan van Haaften from Stifel.

[Dylan van Haaften, analyst]

So just 2 for me. The first one is on the recent sort of BARDA cancellations and mRNA funding. I know you guys have a presence in the [ LNP ] side. I was just wondering, are you aware of any impacts or any downstream impacts here? And then my second question is just on SLS. We've talked a lot about academia and AH, all the stuff. But you guys call out that generally SLS geographically is flat. And I was wondering if what we're seeing is just more of a broad-based R&D hesitancy rather than anything policy related at this point. I think, Jean-Charles, you called out that you expect to kind of end up mid-single digit at the end of the year. I was wondering if you could give any color on maybe reading a little bit too much into policy at this point.

[Jean Wirth, executive]

So on mRNA, so Jean-Charles speaking again, and thanks, Dylan, for the question. On the first one on mRNA spending, as of now, we don't see major, major impact, a little bit in the Labs and Services. Concerning the second question on SLS, you are right. Our sales are well spread across different geographies, call it Americas, 1/3; EMEA, 1/3; Asia, 1/3. And as of now, we -- as I said, we expect to land the year positively. What I mean is we look -- we expect to show an organic growth towards our midterm guidance between low single digit to mid-single digits at the end of 2025. So overall, we are quite positive. And again, we need to keep in mind that H2 has a lower base.

[Florian Schraeder, executive]

Looking at the time, I believe we have reached the end of our Q&A session for today, highly appreciating all of the questions you raised. Now I would like to pass it on over to Belen for some closing remarks.

[Belén Garijo López, executive]

Well, only to thank everybody for your participation in our Q2 call. To summarize, we continued on our profitable organic growth path in this challenging environment that we all know, and we expect to grow even more profitably than expected in Q1 towards the -- during the year 2025. So we really look forward to meeting many of you at the upcoming roadshows and conferences. And I just want to close to wishing you all a good summer.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.