With pharma sales down, AZ Electronic Materials saves the day, or the quarter, for Merck KGaA

Merck KGaA CEO Karl-Ludwig Kley

Germany's Merck KGaA's pharma side remains weak after several years of cuts and consolidation. It needs to be built back up, perhaps through acquisitions, CEO Karl-Ludwig Kley concedes. Until then, the company is counting on its chemicals and electronics operations to buoy its results.

The maker of such drugs as multiple sclerosis treatment Rebif saw a small improvement in earnings, 2.3%, but that was because of help from the $2.6 billion acquisition earlier this year of AZ Electronic Materials, which makes crystals for flat-screen televisions and other products. Earnings before interest, taxes, depreciation and amortization (EBITDA), excluding one-time items, was €845.7 million ($1.1 billion), up slightly from €826.4 million a year earlier. According to Bloomberg, those results beat the average forecast of analysts it surveyed.

But that was with no help from its pharma biz. Sales of MS treatment Rebif, its best-selling drug, were down 2.8% to €464 million in the quarter, as competition in the U.S. and Europe kept its sales in check. Rebif, an injected drug, has been facing head winds from competitors like the hot-selling Tecfidera from Biogen Idec ($BIIB) as well as Novartis' ($NVS) Gilenya and Sanofi's ($SNY) Aubagio, all easier-to-take pills. Sales of its cancer med Erbitux were up 11.3% to €229 million, but licensing revenues collected by its Merck Serono unit were off 30.8% to €64 million.

At the company's annual meeting in May, Kley told shareholders that the company has plenty of resources to devote to big M&A deals, as demonstrated by its buyout of AZ Electronic Materials, but said moves may be smaller and more targeted. He said he was looking at pharma licensing deals and planning to invest €100 million ($138 million) in biosimilars, an area he particularly likes.

He reiterated that strategy Wednesday in a call with media, Reuters reports. "We have a strong balance sheet and a strong cash flow. We can but we don't have to pursue acquisitions," Kley said.

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