Biosimilars should help Millipore achieve long-term growth but cancellation of an insulin contract and rising raw material costs hit second quarter results.
In the second quarter Millipore added €46.3m ($66.7m) to operating income at Merck KGaA. Integration into its new owner’s business makes year-on-year comparisons difficult but sequential sales were at best flat.
The process solutions unit was hit by cancellation of an industrial biopharm insulin contract, which is expected to knock €10m off operating profit in the second half of 2011. Millipore is also contending with rising raw material costs and, like West, is considering passing on these increases to clients.
“For the products that are truly innovative, I think it should be clearly feasible to move on raw material costs”, Karl-Ludwig Kley, chairman of the executive board at Merck, said in a conference call with investors. Price increases in lab consumables will have to be more gradual.
Write-downs of assets also occurred in the quarter. “[Merck Millipore] booked €46m in the second quarter for amortisation of intangible assets in connection with the purchase price allocation. Similar amounts will be recorded every quarter for several years”, said Merck in its second quarter report .
Threats and opportunities
Budget constraints at pharmaceutical companies are also leading to pressures on pricing and volume at Millipore. However, management was keen to stress that the need for pharmaceutical clients to manage costs also presents an opportunity.
“[Millipore] helps with instruments and process support to lower the costs of pharmaceutical production”, said Kley. As pharmaceutical companies pay closer attention to efficiencies at production plants Millipore believes it can benefit.
Impending loss of patents for blockbuster biologics, another problem facing biopharm, is also a possible growth driver for Millipore. Sales of biosimilars and biobetters are expected to drive an upturn in biologics production which, in turn, will up demand for bioprocessing platforms.
Despite near-term challenges Kley views Millipore as “a good business with good profitability” and is also pleased with the new staff. “I’m not saying we acquired Millipore for [Joshua Young, head of investor relations] but definitely he was part of the game plan”, said Kley.