MERCK KGAA (MKKGY) Q1 2021 Earnings Call Transcript

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MERCK KGAA (MKKGY 0.96%)
Q1 2021 Earnings Call
May 12, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Merck Quarter One 2021 Analysts Telco Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Constantin Fest. Please go ahead.

Constantin Fest -- Head of Investor Relations

Dear ladies and gentlemen, a very warm welcome from my side. My name is Constantin Fest. I'm here the Head of Investor Relations at Merck and I'm delighted to have with me here today for the presentation, but also for the Q&A, Belen Garijo, CEO of the Merck Group; as well as Marcus Kuhnert, CFO of the Group. For the Q&A part of this call, Peter Guenter, CEO of Healthcare; and Kai Beckmann, CEO of our Electronics will also join to answer all questions on healthcare and electronics. Matthias Heinzel, our new CEO of Life Science will join this call for a brief introduction; while Andrew Bulpin, in charge of Life Science Process Solutions will be available for your detailed questions on life science and process solutions in particular.

Two more things, if I may, number one, I would kindly ask all of you to limit yourselves to a maximum of two questions per person. This should allow more of you to ask questions in the first place. And the second topic, please be aware that we reserved a little bit more than one hour for this conference call due to roadshows starting right after that. Having said this, I'm very happy to it now hand over to Belen in order to kick off this presentation. Over to you, Belen.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Thank you, Constantin, and a very warm welcome everyone. Before going into the details of our quarterly results, let me make some general remarks. First, starting by sharing that is a real pleasure and a great honor to be here on my first earning call as the CEO of Merck. I'm truly excited to lead the company forward and it goes without saying that my aspiration is to secure an even more successful future for Merck. We have a strong vision at Merck that is widely shared by all our leaders and of course by the Executive Board of the company. This is to accelerate our leadership in science and technology across all our sectors, globalize our business in a more and mobilized for growth everywhere.

Over the coming weeks together with my colleagues on the Executive Board and our global teams, we will further detail and complete our strategy and prepared to make important decisions. It's starting by capital allocation decisions to ensure long-term profitable growth and sustainable value creation. Based on the several meetings I had with many of you in recent past, I am acutely aware of your interest to learn more about our plans and our priorities and we will dedicate our entire capital market space at Merck to share and to discuss these plans with all of you. Your feedback is very important to us. And I strongly believe in the mutual benefit of further strengthening our connection with a capital markets, maintaining a spirit of transparency, clarity and a very honest dialog.

And in this context I would like to make two points. First, on my pharma background, a question that I frequently receive, you can expect that I would say if business champion for all our three sectors. Since I joined the Executive Board in 2015, I have been deeply involved in shaping the transformation agenda of the Group, which provided need with the opportunity to rep their strategic challenges and the strength of all our businesses. Second, I believe in deep content debate best led by the respected business owners, and therefore, I will sit in every quarterly call and be joined by all my colleagues on the Executive Board from now on. This will give you the opportunity to hear first-hand information from our business leaders. In addition, you can expect deep dive into selected topics which are relevant to the quarter, represented by their respective business leads, for example, our Head of Process Solutions, as Constantine mentioned, Andrew Bulpin is here with us today.

Having said this, let's focus today's discussion on our Q1 results. I am now on Slide 5 of the presentation, starting with the highlights. We are also -- as you see on this slide, we have off to a very strong start into the year. Organically, sales increased by 12.2% in Q1 and EBITDA pre rose 36.3%. Taking into account the significant currency headwinds, reported sales and EBITDA pre gain in are EUR4.6 billion and EUR1.5 billion, respectively. Based on this strong performance and the improved outlook for the remainder of the year, we've raised our full guidance and as usual, at this time of the year, get a bit more specific now anticipating net sales in a range of EUR18.5 billion to EUR19.5 billion with EBITDA pre reaching EUR5.4 to EUR5.8 billion, and EPS pre of EUR7.5 to EUR8.2. More details on our assumptions later on.

On Slide number 6 you will find a deep dive on the contribution to growth by the respective business sectors. As you can see, all three business sectors have contributed to our organic sales growth in quarter one. Once again and there is a core in the strength of our forward portfolio and the potential of the so-called big three, namely, increase in revenues from process, the recent healthcare pipeline launches, and last but not least, our Semicon Solutions business. Our Life Science business had now withstanding performance with 27% organic sales growth, while Healthcare showed moderate organic growth with Electronics being a slightly above the same quarter of last year.

We have been confronted with significant currency headwinds of almost 6%, precisely 5.8% on Group sales and small portfolio effects related to the divestment of full-year pro forma at the end of Q1 last year. The remarkable growth Applied Science was led by Process Solutions. We delivered sales up 38% organically. Research Solutions also accelerated further from an already strong Q3. Both businesses saw strong underlying demand and COVID-related tailwinds. About half of the growth in Process Solutions is COVID-related and about 40% in research is COVID-related, while our Applied Solution business also deliver a very solid performance.

Moderate organic growth in Healthcare was supported by a broadly stable base business and this comes despite the impacts from VBP in China and the healthy growth of new products, namely Mavenclad, Bavencio and Erbitux. The highlights of the quarter includes an acceleration to 22% organic growth of our Fertility franchise and Bavencio sales more than doubling organically versus the same quarter of last year. In Electronics, solid organic growth in Semi Solutions and Surface was offset by the continuing decline in Display. Please also note, that we expect momentum in Electronics to improve throughout the year as Q1 was slightly held back my some phasing effect in the finance and Kai may provide additional detail later.

Looking at the earnings, the Group EBITDA pre margin expanded by 560 basis points to 32.6%. The main levers to our quarterly earnings were; first and foremost, strong growth in Life Science, Process Solution, Bavencio milestone payments in Healthcare, and importantly, continued cost discipline across the company.

Moving onto Slide number 7 for the regional perspective on sales in Q1. You see that compared with previous quarters, organic sales growth further accelerated across all regions with the exception of Europe, which is mainly the result of past comparables for our general medicine business. In fact, aside from Europe, where growth was in the mid-single-digits, we have recorded double-digit organic sales growth in all regions, with Life Science being the primary driver and North America as the fastest growing region in Q1. Above all, it is important to note that our footprint remains very nicely balanced with significant exposure, strategically important growth markets in Asia Pacific at 36% of sales, followed by Europe at 29% and North America at 27%.

I'm going to stop here and hand it over to Marcus, who will provide additional color on our financials quarterly results.

Marcus Kuhnert -- Member of the Executive Board, Chief Financial Officer

Many thanks, Belen, and welcome also from my side. And now Slide 9 of the presentation, starting with an overview of our key figures for the first quarter. As mentioned by Belen already, our results show a very strong start into the year. Despite significant currency headwinds, Group net sales increased 6% to EUR4.63 billion, while EBITDA pre rose 28% and EPS pre was up 45% compared to Q1 2020. The financial result and tax rates improved significantly and I will comment on this in more detail in a minute. The operating cash flow more than doubled to EUR1.2 billion, supported by some working capital management and also some savings. Net debt was down by around about EUR700 million compared to year-end 2020, and the net debt to EBITDA pre ratio sequentially improved from 2.1 to 1.8.

Moving on to Slide 10 for a few comments on our reported earnings figures. The EBIT increased by EUR327 million year-on-year, in line with EBITDA pre. The financial results improved significantly due to refinancing benefits, the progress of deleveraging the Group and lower LTIP provisions. The effective tax rate came in at 24%, in line with our new guidance range of between 22% and 24%. Consequently, earnings per share rose by 63.8% to EUR1.72 compared with EUR1.05 in Q1 last year. Please note that we expect further downward pressure on the effective tax rate in the coming months and then increasing share of profits will be recorded in lower tax countries. It also implies that as of Q1, the underlying tax rate for the calculation of EPS pre will be 23%. We will, however, in the future, monitor carefully and closely any changes in tax regulations for these effects not captured here.

And with that, let's continue with the review of our business sectors, starting with Healthcare on Slide number 11. Overall, Healthcare saw a solid start to the year with organic sales growth of 3.5%, reflecting a broadly stable base business and growth of over 40%, new products combined. By franchise, oncology performed strongly with sales up 20% organically, as Bavencio said, it's more than doubled on further uptake in UC first line, and Erbitux rose 10% on a robust growth in China. Please not that, while Erbitux sales did not include any contributions from temporary supply agreement with Eli Lilly in Q1, we expect about EUR60 million from the remaining shipments in Q2. Fertility also had a very strong quarter with sales up 22% organically, driven by an ongoing recovery across all regions with particularly encouraging momentum in Asia Pacific and in the U.S.

Turning to NNI, sales were down 4% organically and a 17% decline in Rebif against tough comps was only partly compensated by the Mavenclad growth of 26% amid still depressed dynamic market. However, we continue to gain share and are optimistic that increased vaccine uptake paired with differentiated vaccine response data bode well for the Merck outlook. Last but not least, our CM&E franchise remained fairly resilient at minus 4% considering tough comps related to stocking effects last year and the volume-based procurement impacts on Glucophage and Concor this year. The pipeline saw no significant COVID-related delays and we look forward to data from the Bavencio Phase III NSCLC trial later this year, as well as the initiation of the Phase III study of xevinapant and cisplatin in eligible patients for the head and neck.

Regarding earnings, EBITDA pre increased 29% organically, supported by about EUR45 million higher non-recurring income compared with Q1 last year as well as continued cost discipline and reduced face-to-face activities. On the topic of non-recurring income, please note that, we booked about EUR50 million milestones for UC first line approvals of Bavencio in Europe and Japan, around EUR20 million of deferred income from GSK and around EUR5 million from active portfolio management. Our full-year guidance for non-recurring income remains unchanged compared to what we told you in March, while for Q2 we expect around EUR20 million from GSK and a low double-digit million euro amount from active portfolio management in total.

Moving onto Life Science on Slide number 12. Overall, Life Science delivered a truly outstanding performance with organic sales growth of 27%, including about 12 percentage points from COVID-related business. In other words, the core business performed very robustly with growth of about 15%, supported by all business units, regions and customer segments. From a portfolio perspective, Process Solutions was once again the main driver of organic growth accelerating to 38%. This performance is a reflection of strong demand across our product lines, including those used in COVID vaccines and therapies, paired with the successful ramp up of additional capacities. Order intake growth also came in strongly. It's more than 60% plus quarter-over-quarter compared to last year's first quarter.

Turning to Research Solutions, performance was equally encouraging with an impressive sales growth of 24% organically. Also here, we saw strong performance of the core business and a significant contribution from COVID-related sales, in particular, raw materials for diagnostic tests. Last but not least, Applied Solutions also had a robust performance with 8% organic. Like in the other two business units, growth was broad based across product lines, albeit COVID-related sales were negligible. In terms of customer segments, we saw growth across the board with pharma and biotech and diagnostics continuing to lead, followed by industrial and testing and academia. All customer segments saw double-digit organic growth except academia, which showed a high single-digit increase. And in terms of regions, also double-digit organic sales growth across all major regions.

Regarding earnings, EBITDA pre surged 50% plus organically, implying significant margin expansion of 600 basis points year-on-year to 37.2%. Main drivers behind include strong operating leverage as well as positive mix and pricing. And please also do not expect the Q1 margin to continue over the year. We have to further invest to support the extraordinary growth. Moreover, also some tailwinds in Research Solutions will decline over the next coming quarters, which means less positive mix effects going forward. Still, we project a significant margin increase over prior year in our guidance. So we are roundabout 250 basis points up when taking the mid points of sales and EBITDA pre guidance as compared to 2020.

And with that, let's move on to Electronics on Slide number 13. Overall, performance of Electronics was somewhat muted in the first quarter with organic sales up by 4.2% as growth in Semiconductor Solutions and Surface Solutions was mitigated by ongoing declines in Display. To add some additional color here, following a very strong Q4, Semiconductor Solutions reported solid organic sales growth of 3.7% in Q1. This is below our mid-term ambition of 6% to 9%, but can be explained by project phasing and our DS&S business, as Belen already mentioned, which may also have an effect on growth in future quarters.

In fact, our Semi Materials business showed healthy growth, in line with our expectations, despite non-logistic bottlenecks, mainly from Seaport congestions resulted, for example, in the limited availability of containers for certain destinations. Sales of Display Solutions declined 7% organically as growth in OLED was more than offset by the continuing decline of liquid crystals. As explained to you before, the COVID-19 pandemic has slightly accelerated the negative trajectory of Display, but we see signs of easing.

Last but not least, Surface Solutions returned to organic growth of 5% in Q1, mainly due to an ongoing recovery in the automotive industry. Regards to earnings, EBITDA pre increased 2.4% organically. And despite significant currency headwinds, the margin increased by 10 basis points year-on-year to 31.8%. This development was supported by diligent cost management and then successful execution of bright future and delivery of natural cost synergies in line with our latest target.

And now on Slide 14 for a few remarks on our balance sheet. The EUR2.1 billion expansion compared with the end of last year mainly reflects the strong growth of the business. Currency effects and a significant increase in cash and cash equivalents in turn related to the very strong operating cash flow. Hence, working capital increased over its slower than sales and the equity ratio improved 2 percentage points to 43%.

On Slide 15, you will find an overview on our cash flows. As mentioned before, operating cash flow was very strong at EUR1.2 billion, mainly reflecting a significant increase in earnings paired with only moderate working capital outflows. The difference in investing cash flow is mainly due to the divestment of Allergopharma last year, while capex remained about stable and was largely driven by capacity expansions in Life Science. Finally, financing cash flow was close to zero, while Q1 last year included some refinancing measures.

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

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Thank you. Marcus. I'm now on Slide number 17 starting with a brief update on ESG. You already heard about our new sustainability targets, which we introduced at the end of 2020. Be reassured that this topic is of utmost important to me and I am convinced that an integrated sustainability approach will help Merck and our businesses to perform even better. In fact, we are not addressing sustainability as a reporting obligation, but rather as a cornerstone of our innovation agenda, the Executive Board will champion this strategy and we are very pleased that three weeks ago the Annual General Meeting approved the new Executive Board compensation system in which sustainability objectives are included.

We are currently working on concrete measures to steer our way toward our sustainability targets and can now develop a set of key performance indicators to build the sustainability factor for the compensation system. Smart KPIs will help select the most effective initiatives to improve in the spirit of our sustainability approach. One example for such is that virtual power purchase agreement we signed in the first quarter with Enel Green Power. This so-called VPPA is an important component of our strategy toward climate neutrality in 2040 and it will significantly increase our share of renewable electricity.

With this, let's move to Slide number 18 to take a look at our COVID-19 assumptions for 2021. As you can see, there is no material change to the overacting assumptions that we laid out to you back in March. By business sector, our assumptions for Healthcare and for Electronics are confirmed. However, we meanwhile became a bit more optimistic on -- more optimistic on our assumptions for Life Science. We now believe that COVID-related demand in Process Solutions will be even stronger than previously assumed that translating in an improved growth outlook as additional capacity comes online. Still on Life Science, the trends for the other two businesses are expected to be a bit more volatile as well as diverse across the different customer segments. Yes, we have become more precise, now assuming that COVID-related effects will be positive in Research and very limited in Applied.

Moving to Slide number 19, I would like to give some additional color on the outlook of Life Science in the context of the pandemic, because, as you know, this is our main growth engine for the future, and overall, as a business, dedicated to making Infinitive solutions possible as our new Life Science CEO would say, we put our purpose to actions to fight COVID-19 through accelerated innovation and increasing investments. Following some headwinds from the initial lockdowns in a spring last year, we have seen significant growth acceleration amid an underlying business recovery and increasing tailwinds from COVID-related businesses.

As I mentioned before about half of the growth in Life Science is Q2 last year can be attributed to product leverage in COVID vaccines, COVID therapies and COVID diagnostics is skewed toward process solutions and followed by research and minimal effect in our Applied business. Demand across significant parts of our portfolio has been truly unprecedented. And in that context, we got active with agility and very decisively to address the bottlenecks as needed. In the last 12 months alone we have announced investment of over EUR380 million in total and we continue to make excellent progress in terms of increasing our output from our existing plans and ramping up new production sites.

Most recently, we were able to accelerate very important initiatives even further, namely, the one for single-use assemblies involving numbers and motion and the one for filtration involving our site paired with the strong demand across both core and COVID-related business this is also one of the main reasons behind our guidance upgrade for Life Science. On the fact that we now expect our Life Science COVID-related sales to more than double in 2021 compared with 2020 and our Process Solution COVID-related sales to increase by a factor of at least 2.5 times.

Overall the situation as you know remains very dynamic and is still difficult to speculate on the magnitude and sustainability of COVID-related demand in the medium term, but happy to answer questions round later. However, we foresee a potentially needs for the vaccine and therapy approaches will begin the current year, and therefore, we expect at least EUR500 million of COVID-related sales in Process Solution by 2022. Meanwhile, core business dynamics remain very encouraging and we continue to review the long-term demand for the product from our portfolio against the expected capacity to be vary to us accordingly.

Moving to the next Slide, let me offer a very brief update on Mavenclad in light of COVID-19. Mavenclad is an important strategic growth driver for Merck and while Q1 performance was a bit muted related to the difficult market environment that we described before, we continued to remain confident in the outlook of Mavenclad. 2.8 million people living with MS globally had started and will continue to be COVID-19 vaccinated over the coming weeks and months. We believe that all these patients regardless of their background therapy need to be reassured that the vaccination will actually work and will generate immunity. Therefore, in this upcoming vaccination era, one of the most burning questions that we are receiving for -- from the MS community is whether COVID-19 vaccines will work for patients on certain types of MS therapies.

What you see here is actually the first ever published real-world studies by independent investigators in Israel and we believe speak of the differentiation of Mavenclad versus other high efficacy therapies in this very challenging context of increasing vaccination. The data speak for itself. The study demonstrated that all Mavenclad treated patients who receive an mRNA COVID-19 vaccines were able to mount a full antibody in response, similar to that of healthy people. This appears to be in start contrast to the other two high efficacy drags for which the protective humoral immunity was significantly lower and we believe that this data are great news for the MS community and also an opportunity to uniquely position Mavenclad for future growth.

With this, let's take a closer look at our upgraded guidance on Slide number 21. As you see there, we expect Group net sales in 2021 in the range of EUR18.5 billion to EUR19.5 billion, EBITDA pre margins in a range of EUR5.4 billion to EUR5.8 billion and earning per share pre in a range of EUR7.5 to EUR8.2. And this is based on organic sales growth of 10% to 12%, organic EBITDA pre growth adjusted for the Biogen provision reversal in a range of 16% to 20%, and significantly above what we had anticipated at the beginning of the year due to an improved demand outlook paired, importantly paired with a continued focus on cost discipline. FX is expected to be a headwind around 2% to 4% both on sales and EBITDA pre. So it's slightly less compared to what we have communicated to you in March.

For details on the outlook by business sector, let's take a quick look at Slide number 22 in brief and summarizing we expect Group sales and EBITDA pre growth to be supported by all three business sectors with the Life Science expected to grow fastest followed by Healthcare and electronics relatively -- relative to our qualitative outlook from March and already -- and as already mentioned, we have become more positive for all sectors, although, Life Science clearly stands out.

And with this, and before opening the Q&A, it is with great pleasure that I would like to hand it over to Matthias Heinzel, who joined us April 1st as our new CEO for Life Science for a few introductory remarks. Matthias, over to you.

Matthias Heinzel -- Chief Executive Officer Life Science

Yeah. Thank you very much, Belen, and hello to everybody on today's call. First of all, the big things for the warm welcome which I received from my colleagues across the globe. And since many of you on the phone probably don't know me in the sector, so let me quickly introduce myself. So I'm Matthias Heinzel. As Belen mentioned, I've joined as the CEO of Life Science for Merck just a few weeks ago. I came from DuPont. We have spent the last 18 years wondering various senior business leadership roles and working in different locations, like in Germany, Denmark and the United States. Most recently, I was serving as a Member of the Executive Board and President of the Nutrition and Bioscience business. Prior to that, I held various leadership roles across marketing, strategy and business development in the telecoms industry in the early '90s and I actually started my career at McKinsey. So for me there is actually no better time than now to join Merck and I'm really excited to be heading up Life Science.

It's such a great business like what we've seen to pay with our results and operating so successfully in such a highly attractive market. The tremendous capabilities, the broad and deep portfolio and less global footprint of Life Science is such a great foundation for driving the future profitable growth of the business for the benefit of our customers, shareholders and employees, and obviously, the COVID-19 pandemic is just one example of the positive impact we can make in the critical role we play. I've already have the opportunity to engage with many of my new colleagues. I did already many virtual site visits and get engaged on many of the critical topics. So I'm really looking forward to getting to know you, our investors and analysts, and engage actively in discussions with you, especially after I had completed my first 100 days. So that said, I'm really excited to work with Belen and my executive team colleagues to take an already great business to the next level.

And with that, back to you, Constantin.

Constantin Fest -- Head of Investor Relations

Thank you, Matthias. Ken, could we have the first question, please?

Questions and Answers:

Operator

Sure. [Operator Instructions] We can now take our first question from Richard Vosser from JP Morgan.

Richard Vosser -- JP Morgan -- Analyst

Hi, thanks for taking my question. First question to Belen, please. Belen, I realized you mentioned that Capital Markets Day will be dedicated to a strategy update, but I was hoping if you could give us maybe your first ideas of how you see Merck strategy, are there areas that need some changes or focus or different emphasis all parts of the group that needs strengthening or become less relevant in your opinion, in your sort of look over the group again in your new role.

And then second question please just on Mavenclad. The quarter was I think weaker than expected, is there any price pressure in the U.S. or Europe? And you mentioned you were confident, but how do you counterpart from here with sort of annual sales of EUR600 million to the EUR1 billion to EUR1.4 billion? Thanks very much.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Thank you, Richard. As mentioned, for detailed information, we will spend a full day together in nearly September and this is around the corner. But let me give you the three principles. First, continuity, we are starting in this journey from a very solid position of strength. Second, focus, stringent focus on the three big and keeping our cost discipline, to deliver sustainable and profitable growth of our business. Last but not least, obviously, as our cash position improves, we will be contemplating how do we strengthen our outlook by eventually considering a better balance between inorganic efforts across these sectors and eventually and stream of sales approach starting in 2022. More to come in September.

Peter Guenter -- Member of the Executive Board, Chief Executive Officer, Healthcare

And Richard, it's Peter speaking. Thanks for the question on Mavenclad. So at least there is no price pressure for the time being not in Europe, nor in the U.S. So the relatively depressed sales in Q1 are entirely due to the depression of the high efficacy markets. There is absolutely no performance issue. We continue to gain market share, the high efficacy market both, in U.S. and in Europe. And we are confident that with the decrease in lockdowns due to the increase in vaccinations, this high efficacy market will progressively resume to its normal levels as we -- as the year unfolds. And last, I think Belen has already mentioned this, of course, the vaccination data are absolutely key. They are extremely relevant for the patients at large. And we do think that it was maybe let in unique position to further drive up our market share in the rest of the year.

Richard Vosser -- JP Morgan -- Analyst

Thanks very much.

Operator

We can now take our next question from Matthew Weston from Credit Suisse.

Matthew Weston -- Credit Suisse -- Analyst

Thank you. Two questions please. The first on Life Science. I'm slightly confused about the outperformance in research. COVID diagnostics is obviously been a very important driver for the last nine months. It hasn't materially impacted that business. So, I'd be very interested to understand, why that's now a feature of 1Q. But also, I'd like to understand the trends in the non-COVID via process revenue. Is there any evidence that your customers are stockpiling normal orders so that essentially revenues have been brought forward and that is going to have to correct at some point in time when everything moves back to a more normal supply chain post COVID?

And then secondly, a finance question for Marcus. I know that you've lowered the tax guidance on coal, and I completely understand that that is driven by the mix toward Life Science. But given that we are in a period where we've got exceptional Life Science income and we've also got a number of governments pointing toward higher corporation tax going forward, I'd be very interested to understand, what you baked into those tax assumptions for the mid term. Is that something which is specifically for 2021 or something that we should assume as a useful guide going forward? Thank you.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Thank you, Matthew. Let me start with Research and I will ask Andrew to continue with Process. So, Research is strong, right. Research is strong in relation to two factors; one, low comparables versus last year; second, a kind of catch-up effect, deriving from the reinitiation of activity mainly in pharma and biotech. So we have seen an ongoing business recovery across all business lines, across all the regions and across all big customers as these pharma lab activity continues to pick up. Is this going to be going into the future? I mentioned already as part of our brief comments during the outlook, we are not expecting so. So, keep in mind that during the first half of the year, we are going to have very tough comparables, because Q2 will be -- Q2 2020 was also a difficult one in relation to COVID. So we are expecting that the second half of the year will not be behaving exactly as per the standards that we have seen in Q1. That is the bottom line. Then, for Process, I said, Andrew, you want to comment on markets question, please?

Andrew Bulpin -- Head of Process Solutions

Sure. Absolutely, not a problem. Hi there, Matthew, and hope you're well, and thanks for the question. In terms of the question as to whether or not we believe our customers are stockpiling, absolutely not. We have worked very, very closely throughout this pandemic period with all of our customers. I think one of the big challenges is, with the surged demand in many cases, where we have supply pinch points, it's very much hand-to-mouth. So we have worked very closely with all of our major accounts to ensure that they're getting what they need as best we can deliver when they need it, but certainly, having to manage that sort of inventory inflow of materials because of the surge demand. Overall, with respect to the base business versus COVID-19, last year was about a 50-50 split, this year quarter one, similar. So very strong base business. And I think there's just a lot of activity going on in the industry. The traditional modalities, the maps remained very, very strong. And with all the new novel modalities, there is opportunities, because they are going after diseases and conditions that historically were untreatable. So robust market right now and very good tailwinds from COVID-19.

Marcus Kuhnert -- Member of the Executive Board, Chief Financial Officer

Matthew, I would take your tax rate question, obviously. So, first of all let me let me reconfirm that you are absolutely right. The main driver for having reduced effective tax rate guidance for 2021 was indeed a changed country mix of the allocation of our profits before tax and that is obviously predominantly driven by the strong growth dynamic in Life Science, where more gains rising, for example, in the U.S., which currently is a country which has a below average tax rate. So, out of that, we can immediately conclude that we will see for the foreseeable future, for the nearer future, a continuous downward pressure on the tax rate as we believe and this was outlined by Belen also in the presentation that, also next year we would still get at least EUR500 million additional COVID-19-related sales and that will unfold obviously a similar downward pressure than what we have seen this year.

The second assumption, Matthew, is also right. If you see at the moment a lot of uncertainty regarding the future development of tax regulations in countries. That is obviously to do with the fact that nations, countries are now contemplating on how to digest the economic effects of the COVID crisis and we believe that in many cases, tax rate adjustments are likely to come. Please acknowledge that, now in May, it is just too early to give a longer term projection that is why we feel secure to say the lower tax rate of 22% to 24% for the time being is only valid for 2021. But rest assured that we will give you a further update in the course of this year on, let's say, what's going on the tax regulation front and how this might impact the tax rate going forward into 2022.

To conclude with one last sentence, currently, how I see it at the moment, there is only one thing, one single event that could really, I would say, change the picture significantly, and that is, if we were to have ambiguous tax reform that is something that's being contemplated and considered, but still in a very infant stage. And, as I said, we'll keep you updated when the year unfolds.

Operator

Thank you. We now take our next question Peter Verdult from Citigroup.

Vinit -- Citigroup -- Analyst

Yes. Hi. Can you hear me?

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Yes.

Vinit -- Citigroup -- Analyst

Yeah, hi. This is Vinit here on behalf of Peter. We have got two questions. So the first one is on Electronics. Can you talk to the ongoing uptick in the chip demand and how that plays versus your 6% to 8% growth target at Semi Solutions? Is the double-digit growth scenario to consider in both 2021 and 2022? And the second question on Life Sciences. We appreciate that the 37% margin you posted in 1Q is unsustainable, but similarly the 32% to 33% range you had previously guided to also looks too conservative. Now given the mix change we have seen within the Life Sciences business, what is the sensible level of profitability to assume going forward? Thank you.

Kai Beckmann -- Member of the Executive Board, Chief Executive Officer, Electronics

I'll go first on the Electronic question. Thanks for the Electronics question and you were referring to the growth expectation and related to the Q1 situation, just bear in mind that our Q1, of course, compared to very high Q1 last year and the our delivery systems and services business is not as steady as a material business. That's why we see quite some jumps from quarter-to-quarter. And if I could guide you to Slide number 37 in the backup, you can see the organic growth quarter-by-quarter listed there and it's demonstrates it's steady situation all-in-all over the past five quarters.

The outlook, that's why we are confident looking forward on the next quarters, which is included in our guidance for 2021 with let's say strong outlook that we have demonstrated here. I wouldn't want to give any outlook on 2022 right now. I think the situation doesn't permit an outlook for 2022, but our long-term guidance for Semi Materials, Semi Solutions being in the up to a high single-digit growth shows that we are pretty confident in the long-term trends in our customers announcing capacity upgrade, significant capacity upgrades that may on stream in about 18 months that gives us additional confidence about the future in Electronics.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Let me start with the second question and I will ask Marcus to based on that. When you look at the future, we have repeatedly said that we are extremely confident about the Process Solutions sales growth. But please take into account that we will also have to invest. We need to invest on growth of our Life Science business. We need to invest in R&D. We need -- we will need to invest also capex, even if this will not be seen here. With that in mind and we will find the right balance and stay efficient, but I assume that our intention is to continue -- to invest on growth of Life Science in order to keep the outlook as promising. Marcus?

Marcus Kuhnert -- Member of the Executive Board, Chief Financial Officer

Yeah. Thanks Belen. That is of course I would say the strong argument and my point only a little bit to compliment that I would add to that. Maybe one effect what we could also mention is that why we believe that the Process Solutions tailwind will remain strong over the course of the year. What we have seen in research this first quarter was most likely quite unprecedented and here we might see somewhat declining tailwind over the coming quarters. We will still see a very benign and positive business environment, but I doubt that we will see these growth rates going forward also having in mind that be that the though that the comparables are getting much, much tougher.

As you know, a significant portion, yeah, significant portion of the margin improvements are also due to positive business mixes and when the COVID-19-related tailwind at least in Research declines a little bit so will the positive business mix effect. Still, our guidance and tails if you would take the midpoint in sales and EBITDA then a 260 basis points increase in margins which would lift the margin of some 32% end of last year to a level of close to 35% in 2021, and I would say that's quite a nice margin expansion.

Constantin Fest -- Head of Investor Relations

Next question please.

Operator

We can now take our next question from Sachin Jain of Bank of America.

Sachin Jain -- Bank of America Merrill Lynch -- Analyst

Hi, there. Thanks for taking my questions. I had a couple more on Life Sciences, if I may, and kicking off with Process Solutions. So for the quarter I think Process growth of 38% organic compared to peers in the high '50s. So when you just to compare and contrast and give us any color on the performance there in terms of capacity constraints or your order book delivery timelines potentially being longer. Secondly plan in your introductory comments, I think you mentioned Process COVID sales of EUR100 million by '22. I just wanted to clarify whether that was delivered in calendar year '21 or that was a comment for '21 and '22. And if it was the later, if you could give us any color on the split across the years. And then I guess to wrap the question up, I guess the simple question that I get asked is you'd been very clear on sustainability COVID tailwind into '22. I guess the question is, is the COVID tailwind in '22 the same, greater or less than the tailwind in '21? Thank you.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Thank you, Sachin. I'm going to ask Andrew to speak about the order book for Life Science first. Andrew, can you comment on that and give a bit more color, please.

Andrew Bulpin -- Head of Process Solutions

Sure, absolutely. I think there's a couple of things. One, I think you're correct in the analysis that the transformation of orders into actual sales really depends upon the availability of short-term capacity and there we certainly have some pinch points. But I think some of the elements that we are seeing is that the quick decisions we took last year to accelerate capital investment, starting share dividends, they came on stream in early January and we've seen the uptick of the output as we've demonstrated in the numbers for this year and we will continue to ramp up throughout this year.

We also announced an investment for example in Danvers which start single use that now on stream and Jaffrey for our filtration products that's now on stream when we're feeling the benefit. But also looking at it geographically and investment in a single use facility in this transport area on our all time campus, which I think gives us a little bit extra sort the protection from geodiversity and having a more global network moving forward. So it's definitely moving into right direction. The order intake and the order book remains strong. And we look forward to being able to deliver upon those as the capacity ramps up in these new investments.

Peter Guenter -- Member of the Executive Board, Chief Executive Officer, Healthcare

So Sachin, let me take your second and your third question on the COVID-19 tailwinds. Once again, the magnitude and the sustainability of the COVID-related demand is kind of difficult to assess in the medium term given the uncertainty associated about -- associated to the durability of the current approaches, as well as the potential implications of mutants. However, we see a risk on our chance that the COVID-19 pandemic could turn pandemic. We could suggest potential requirements for boosters and hence the need for vaccine and therapy approaches will be during the current year. So this is our global view and actually captured in our assumptions of one pick up share with you before for 2021 and begin in a away and on the view that we have for coming years. Based on the visibility that we currently have, what I hinted during the presentation is that we are expecting to see at least EUR500 million of COVID-related sales for our Process Solution business in 2022.

Constantin Fest -- Head of Investor Relations

Thank you, Sachin.

Marcus Kuhnert -- Member of the Executive Board, Chief Financial Officer

Maybe if I could just add an extra comment on that. If you look at the sort of profile, for example, of the booster shops compared with the original vaccination programs, this is actually from discussions with the main producers, these actually are of a different formulation and perhaps will contain less active ingredient than in the original vaccination shop. So just as a watch out when you hear sort of 1 billion doses in 2021 going to 3 billion doses next year that doesn't necessarily translate to a 3x increase in the business now.

Sachin Jain -- Bank of America Merrill Lynch -- Analyst

So I just take here one follow-on just for that EUR500 million you've pointed to in '22, what does your guidance assume for '21? It looks to be about EUR700 million to EUR800 million, and what was that number in 2020? Again it looks to be about EUR200 million, I wonder if you just clarify those numbers so we get a sequencing right across the year? Thank you.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Yeah. Marcus is going to jump to that.

Marcus Kuhnert -- Member of the Executive Board, Chief Financial Officer

Yeah, yeah. So, Sachin, I think the 2020 number was something around EUR400 million. We project a factor at least of two for 2021. So that means, we would end close to EUR900 million most likely in the course of this year total COVID tailwinds, whereby the majority of that is obviously happening in Process Solutions. And for '22, as Belen just outlined, something in excess of EUR500 million.

Sachin Jain -- Bank of America Merrill Lynch -- Analyst

Perfect. Thank you very much.

Operator

We can now take our next question from K.C. Arikatla from Goldman Sachs.

Krishna Chaitanya Arikatla -- Goldman Sachs -- Analyst

Hello, everyone. Thank you for taking my questions. I have two please. The first one on Mavenclad. Just trying to understand the softness here a bit more. Are you able to provide any detail if the softness is coming from fewer patients rolling into the second year of treatment or is this driven by fewer patient starts, please? That's the first one. The second one on COVID demand in the quarter in Life Sciences. Is this predominantly driven by COVID vaccines or is there a decent chunk from COVID antibody treatments as well, please? Thank you.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

K.C., let me address the first question very quickly. So the majority is coming from vaccines with a smaller percentage coming from diagnostics and therapeutics almost, very, very small vaccines. Peter, you may reply.

Peter Guenter -- Member of the Executive Board, Chief Executive Officer, Healthcare

So, K.C., thanks for the question. So what you have is actually two impacts; first, the confinements and the lack. There is a clear correlation between mobility and new patient starts, OK. So, basically, the bulk of the depression of the high efficacy market is due to lower patient starts. And there is a bit of an effect on year two patients, because remember, last year in March, we started to see an effect on the new patients in the first COVID wave. Meaning that you have a bit of an effect also on the year two returns of that patient cohorts that was supposed to be treated in March last year, which was not treated, and therefore, also did not come back this year in March. But I would say, the bulk of the effect would be on the new patient starts. And we see it by the way, both sides of the event.

Krishna Chaitanya Arikatla -- Goldman Sachs -- Analyst

Thank you.

Operator

We can now take our next question from Falko Friedrichs from Deutsche Bank.

Falko Friedrichs -- Deutsche Bank -- Analyst

Thank you very much. Good afternoon. My first question is coming back to the EUR500 million of COVID revenue in 2022. Thanks for providing this number. Did I understand it correctly that this only relates to the Process Solutions side of the business or does that also include the potential COVID revenue in the Research Solutions business over the Research Solutions business come on top of the EUR500 million? And then secondly, on this ongoing semiconductor shortage. Could you maybe elaborate a bit more on how this situation should affect your business throughout the year and to what extent your Electronics business could profit from it?

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Thank you, Falko. Just to clarify to your first question. This number is a floor and it refers to our Process Solutions business.

Kai Beckmann -- Member of the Executive Board, Chief Executive Officer, Electronics

Falko I take the question on the Semiconductor side. So, the shortage is, of course, signal that our customers are running full steam right now in high utilization. That means, of course, a certain limit to current capacity. But our customers have been announcing capacity increases over the past months, which gives us a very strong confidence about the future outlook of semiconductor production capacity, basically, our target market. But the current situation, the shortage situation, will continue until new capacity is on stream and this may not be much earlier than, as I said, earlier in the question, 18 months from now. That's the situation we are in. But currently, full utilization across all different areas of semiconductors.

Falko Friedrichs -- Deutsche Bank -- Analyst

Okay. Thank you.

Operator

We can now take our next question from James Quigley from Morgan Stanley.

James Quigley -- Morgan Stanley -- Analyst

Hello. Thanks for taking my question. I have only got a couple up for you. So, Mavenclad, I'm not sure if I missed this in the release, because could you give us an idea of what the U.S. versus ex-U.S., let's say is. And then, in relation to the interest to data on Slide 20. So, ratio is saying that the T-cell response is still maintained in patients and for protection in patients who have therapies and the COVID vaccine. Then, when we look at the infection rates in the Phase III trials with CD20 there, we do not significantly elevate. I mean, do you have any other evidence or real world data to suggest that patients on CD20 therapies are more susceptible to the COVID-19 infections? And then in which case the data that you presented could be very, very powerful? And then, also sort of on MS, could you give us some -- an idea what the exit rate of the latest data of the last month data you have shown for the high efficacy market trends in the U.S. It is to get a sense of the opportunity here in Mavenclad in that net area. Then second question on Fertility dynamics. What are you seeing across the different regions and sort of where are we in terms of the reopening of Fertility cleaning? How we sort of close to the full reopening in the U.S. and APAC, where you saw particular strength or is there more to come for Fertility?

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Peter, please?

Peter Guenter -- Member of the Executive Board, Chief Executive Officer, Healthcare

Yeah. So thanks a lot for the questions, James. So,first of all, the split between ex-U.S. and U.S. is roundabout 50-50. There is a little bit of variation quarter-by-quarter, but roundabout that's where you would think about, OK. On the whole debate around beta B-cells and T-cells humeral and cellular immunity, I would say that, we have definitely very strong data that we do create a humeral response with very strong antibodies, identical really to novel subjects and you see a very, very different data coming from the other high efficacy products. Now, the whole debate around T-cell immunity, I wouldn't go into the debate and I think that the burden of proof of is on the other high efficacy products. And I think they have a bit of work to do to improve indeed that you would mount to cellular immune response.

In terms of market share trends in the U.S., so in the high efficacy market, if you look at the data dynamic share points, we're roundabout between, I would say 5% to 6% in the dynamic and we roundabout 2.5% in the total markets, going up. We have a bit of a different situation in most European countries, where we have an average high efficiency share of roundabout 10% plus. And on Fertility, so extremely excited by what we're seeing in that market. It's really a great place to be in. There is a sustainable tailwind in terms of demographics, obviously. There is a relatively low and weak level of competition. And after the difficult Q2, you saw actually, the markets coming back relatively quickly to a normal situation. And now we have actually even a bit of a catch up mode which is partly explaining the quite stellar Q1 results. Don't forget, of course, that in Q2 last year, we saw a pretty dramatic impact of COVID and the confinements. So we expect, of course, a very weak comp in the quarter to come.

James Quigley -- Morgan Stanley -- Analyst

Great. Thank you very much.

Peter Guenter -- Member of the Executive Board, Chief Executive Officer, Healthcare

Thank you.

Operator

We can now take our next question from the Simon Baker from Redburn.

Simon Baker -- Redburn Partners -- Analyst

Thank you for taking my questions. Two please. Firstly, on Display Solutions. You said in the slides that OLED is not yet compensating for LCD weakness. I wonder if you could tell us, when you expect that to be the case and how far off we are from OLED compensating for LCD declines? And then secondly, for you, Marcus, it's a small point, but I just wanted to check on Healthcare. There has been a bit of a shift in the amount of amortization of intangible assets within cost of goods and marketing and selling expenses. One is significantly higher than last year, one is significantly lower. I just wondered if Q1 is a good trend for the year and if it's been any accounting policy changes. Thanks so much.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Kia, do you want to take the first question?

Kai Beckmann -- Member of the Executive Board, Chief Executive Officer, Electronics

Simon, I take the OLED question. And so the OLED materials market is supposed to be on the same level as the Liquid Crystal materials market about next year that's as far as the market data shows. But bear in mind that our position in Liquid Crystal, of course, is strong in OLED we are among the competitors and in Liquid Crystal, of course, our position is stronger than that. So it will take some time until those businesses would be on the same level.

Marcus Kuhnert -- Member of the Executive Board, Chief Financial Officer

And Simon, can you repeat your question again.

Simon Baker -- Redburn Partners -- Analyst

Yes, certainly, Marcus. If I look at Healthcare amortization of intangible assets within cost of goods and marketing and selling expenses, Q1 looks significantly different to last year. So the amount of amortization of intangibles in COGS is significantly higher and the amount within marketing and selling is lower. They're relatively small numbers, but I just wondered if Q1 is good guide to the rest of the year and if there's been any accounting changes that have come to that.

Marcus Kuhnert -- Member of the Executive Board, Chief Financial Officer

I'm not aware so that we have any kind of accounting changes. And regarding the to be expected run rate for the year, I suggest the IR team is going to follow up with you directly Simon.

Simon Baker -- Redburn Partners -- Analyst

Great. Thank you very much.

Constantin Fest -- Head of Investor Relations

I think we have time for one more question, please.

Operator

We can now take our final question from Luisa Hector from Berenberg.

Luisa Hector -- Berenberg -- Analyst

Hello, thank you for taking my question. Just in terms of the outlook this year and given that we are really nearly halfway through the year and you do have quite reasonable visibility with your order books, etc. I just wondered if you can make any more comments on what's driving the upper and lower end of your guidance range, is it still the uncertainty of COVID that gives you that spread? And then just to come back on the Life Science investment, so you made a few comments about your capacity expansion related to COVID, are you pretty close to those investments now being fully operational? And how should we think about the investment into the core underlying business since you've identified so the demand this year which has led to part of your increased guidance? Thank you.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Hi, Luisa. I think we have already shared as much as we can on -- based on the visibility that we have today on the -- during the presentation. So once again looking forward to 2021, you can use the answer that I have given for Life Science such as proxy, right, because our Healthcare will move on the high efficacy dynamic market progression, as Peter repeatedly said, and also the increased mobility that is actually reflected already during our Q1 results associated and implicating Fertility and other businesses. So as vaccination progress, we cannot expect anything, but better mobility and recovery presuming the traditional healthcare dynamics of the past spending and this is a different question and it's not related to mobility the high efficacy dynamic market trend.

On Life Science, I mentioned that already, we have an ongoing multi-year program to expand our Life Science capacity to support this global and growing demand and so far we are really on track. I mentioned how heavily we have invested in the last months and that amounted to EUR350 million. And is because we believe that the trend will continue as you see each and every vaccine manufacturers have announced new commitments, speaking of new base in doses being produced and committed to different countries and governments and as we see this trend be kept to the future. This is giving us confidence that we are going to be a farther developing the business mainly in Life Science on the basis of our increased capacity and that is really the main element that could make a difference between the low and high part of the range on revenues, obviously.

Constantin Fest -- Head of Investor Relations

Thank you. This was the last...

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

I think there was a question on capacity. I don't know if Andrew do you want to add anything very briefly on capacity of Life Science and the capacity expansions beyond what I have said already.

Andrew Bulpin -- Head of Process Solutions

Sure, Belen. And you mentioned the EUR380 million, if you look at that it's split really across core business and the need for COVID-19. So, for example, EUR140 million investments in Darmstadt for new membrane plant, EUR100 million in Carlsbad for viral vector, we've got EUR60 million in Madison for high potent APIs and for ADCs, and then EUR21 million in Denver for single use, EUR19 million in Jaffrey for filtration, EUR18 million in books supporting our reference materials and then the EUR25 million investment for single use involve time, so significantly investing. And then if you add to that sort of where we are with the acquisition of Amtek in the mRNA space, the CDMO space there and our partnership with BioNTech to accelerate lipid supply is -- there is a significant investment both in base and COVID-19 activity across Process Solutions.

Constantin Fest -- Head of Investor Relations

Well, thank you very much. With this, I'd like to hand over again to Belen for closing words for this call. Over to you, Belen.

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Thank you, Constantin. In the benefit of time I will be very, very brief and I will focus on thanking everyone for making the time and for your increasing interest in Merck. We look forward to meeting all of you and many of you in the upcoming roadshows that are planned setting today. Some of them will -- keep in mind that our Q2 results are due over speed and we will be hosting our Capital Markets Day September 9th. With this, thank you very much for all your questions and your attention and talk to you soon. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 76 minutes

Call participants:

Constantin Fest -- Head of Investor Relations

Belen Garijo -- Chair of the Executive Board and Chief Executive Officer

Marcus Kuhnert -- Member of the Executive Board, Chief Financial Officer

Matthias Heinzel -- Chief Executive Officer Life Science

Peter Guenter -- Member of the Executive Board, Chief Executive Officer, Healthcare

Andrew Bulpin -- Head of Process Solutions

Kai Beckmann -- Member of the Executive Board, Chief Executive Officer, Electronics

Richard Vosser -- JP Morgan -- Analyst

Matthew Weston -- Credit Suisse -- Analyst

Vinit -- Citigroup -- Analyst

Sachin Jain -- Bank of America Merrill Lynch -- Analyst

Krishna Chaitanya Arikatla -- Goldman Sachs -- Analyst

Falko Friedrichs -- Deutsche Bank -- Analyst

James Quigley -- Morgan Stanley -- Analyst

Simon Baker -- Redburn Partners -- Analyst

Luisa Hector -- Berenberg -- Analyst

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