Helene von Roeder, CFO Merck – Combining Pharma, Life Science and Electronics in a Stock-Listed, Family-Owned Firm

[MUSIC] Leading corporate transformation, the podcast by VHAU Autobysime School of Management, powered by PWC, on the transformation of companies and their culture, from decision makers for decision makers, or from entrepreneurs for entrepreneurs. [MUSIC] Dear listeners, welcome to a new edition of our VHAU podcast leading corporate transformation, powered by PWC. My name is Martin Glam, I'm a professor at the VHAU Autobysime School of Management. And as always in this podcast, with me is Gory von Hirschhausen from PWC. Gory. Yeah, thank you Martin and the one welcome from my side. My name is Gory von Hirschhausen. I'm the co-host of this podcast and I'm the transformation consultant in this show. But let me turn our eyes to the most important person for today. So let me introduce our guest. It's a great honor to introduce Helene von Rüder, CFO of Merck. Helene, thank you very much for having us. Well, thank you very much that I can be here. [LAUGHTER] Yeah, it's a great opportunity actually to talk about Merck and of course to talk about your job as a CFO and about yourself. I think most of all our listeners will know Merck. Merck is a conclomerate from life science healthcare to electronics. So it's very interesting to see how diverse your business model is. So let's kick it off with just some words around what Merck is all about and about yourself, Helene, over to you. So that's an easy one. Let me start with Merck because that's definitely the most important and most exciting piece of your question. Yes. Merck is deeply rooted in the science and technology. And what we're looking for is to always be at the forefront of innovation in order to basically further the life of humanity. And I think that's a huge, huge purpose that every day everybody here is rallying around in order to make sure that we deliver on that purpose. Now, as said, I have the huge honor to be the CFO here at Merck. I've been here for two years, which in Merck terms is maybe just being admitted to kindergarten because most people are much longer in this company. And I'm very, very proud to have an extremely strong team behind me to help the business to develop and find innovation and bring things forward for this company. I mean, it's interesting. I don't know if this is really aware to everybody out there. Merck is one of the oldest farmer companies in the world. It goes back to 1668, right? Indeed. I can remember that number because it's a very good pin coat. Okay. But it's also, I mean, if you look back in such a tradition, there's a few things that you can learn for the future. Being old does not at all mean being stale. It doesn't mean at all not changing things. It's actually the complete opposite. In order to survive so many crisis, so many wars, so many new topics and new evolutions, you need to be incredibly agile and take pretty clear decisions on a fast speed to make sure you always stay relevant in the future. And that's something that we at the GL, which is the board of directors of Merck, are constantly putting ourselves in our book of duties, to make sure that we set up this company for the next 350 years. That's quite an agenda. Very good. So the origin was a pharmacist here in Darmstadt, a Friedrich Jakob Merck who ran this pharmacy. And from there, you know, you developed over the years, 350 as we heard. Now, as Gory said, you're much broader. You still have the pharma business, which is healthcare, and you have life science and you have electronics. I suggest we go through these three sectors, as you call them separately, one by one, and then maybe cover some some some group wide topics after. Let's start with pharma. It's the origin. And it's also kind of interesting to me or to us because just yesterday you closed an interesting acquisition in that business. It went through the press. My view on the pharma businesses that it's in a, how shall I say, in a somewhat problematic situation, you were very, very unlucky in the last two years with the two very promising substances that did not prove to be effective or effective enough in phase three trials. That was in December 23 and in June 24. Your major blockbuster product will run out of patent protection, I think, within the next three years or four years. So what's the situation there? What's your look at it? And it's a very risky business. And what's the role of this new acquisition of spring works that you just did in the US? So our pharma business is very special compared to most other pharma businesses. Why? Because a large chunk, and I think it's 60, if not more, percent of the pharma business is actually an incredibly stable and growing business. As you may know, we are one of the largest fertility providers. And I mean, we all know the demographics. We all know what is happening in the world. Fertility is definitely a topic that is on the forefront of most governments. And then we also have the so-called CME/Business, which is basically a business where we are selling into developing markets, a suite of drugs that are basically around basic health issues, be it diabetes, be it cardiovascular, be it cyro diseases, which is growing significantly. We've shown last quarter 11% of growth. And that's different for most other pharma companies because it doesn't underlie any LOE, so any loss of exclusivities, which is what most other pharma companies would actually observe in their portfolio. And then we also have, of course, what we would call the innovative pharma part. The innovative pharma part is you are rightly alluding to Esgot Maventlet, which is an MS drug. The base case for the first LOE expiry is the US, which is end of 26. And then it's a staggered LOE over Europe in the years of coming up in 2030. And then Bavensiu, which is a cancer drug, which at this point in time has a little bit of issues because we have competitor drugs coming into the market and starting to eat into our market chain. That is where we actually have seen the loss of the two or phase three studies. And as a result, we, of course, looked into what do we need to change? Now, what do we need to change is to basically make it very clear of how can we de-risk our pipeline going forward. And one thing we noticed is that we very frequently had first in class or best in class therapies. And the question is with our mid-sized pharma company, being a mid-sized pharma company, is that the right approach or should we actually look at more de-risk assets? And to some extent, smaller peak sales assets. What's a peak sale? It's basically the dollar amount that you're going to sell in one year. Most of the larger pharma companies have peak sales assets which are multi-billion dollar. Now, for Merck, we don't need that. We can have 500 million dollars, we can have a billion of dollars. And that will still generate nice growth into our pharma business. And hence, we believe that's the sweet spot of where we want to position ourselves going forward because the competition is much lower. And spring works, but actually more pemicotinib, which is where the journey started, are basically a sign of us constructing a new, let's call it beachhead, into this area of rare tumors, which lower peak sales, where we feel we can really have a competitive edge to play. And going forward, we can sort of add more assets into the mix in order to create a sustainable pharma. So if I get that right, it's looking for specific niches. It's less niches. It's more about where do we find areas where the big gorillas don't play. Okay. Yeah. It's clear, we're midsize. We do not have the funds that the Pfizer or some of the big ones have. But we do have a right to play in those smaller areas, where it's a very specific go-to market where we can benefit from what are our strengths. What's your view on R&D and your own R&D in this? I'm not an expert on pharma, but for some years this has been discussed that the big companies R&D pipelines are not really very productive, or efficient, I might rather say, and that where the innovation is isn't very small companies, so probably the art is identifying those at the stage where they are still affordable and not too expensive, but your outsource R&D then in a way. So most of the statistics are basically saying, "Racial of efficiency is nearly 2 to 1 outside versus internal R&D." So of course, there has Peter Gunter and NoDanny. Why don't we just stop all R&D and then we're basically. In a way, sounds easy. Of course it isn't. And then we just buy from externality. The very clear answer both of them have given to me is to say, "You need internal R&D in order to evaluate and assess external R&D." And you have seen us pivoting towards a strategy where we say 50% of the R&D should come from the outside. 50% should come actually from the inside. And then I think we need to calibrate as we go along. Let me follow on. If you buy in, as I mentioned, I think it's really interesting. If you find the right substance or company having substance, that are promising early on, they are still, I wouldn't say cheap, but affordable, but very risky still. You waited with spring works till they got FDA approval, right, for their two substances, which meant you had to pay three billion plus, right? So what's the tradeoff here, right, between early risk taking and waiting and paying? It's a probability game. So the probability game is like it's very well known if you have the market odds for different therapeutic areas, you know the success rate of a phase one, a phase two and a phase three trial. And then it's just all about weighing that probability and hoping that you are better and supporting the ones that win. Now, let's look at spring works because I mean, yes, from the outside, we had to pay three billion dollars, having said that that share price had traded at 80 dollars, it's now we eventually bought it at 49 and you may hear the magic word dollars because we also had the additional opportunity around a significantly weakening dollar over the period. So compared to the business case when we first looked at it, this asset has actually generated a highly attractive return for us. I mean, you've seen this like it will be a creative in terms of sales already this year. And we expect in 27 and EPS accretion as a result of the asset. So we're super happy. And I think the reduction in value in the biotech market has really helped us to make that acquisition. I mean, the spring work acquisition overall is an interesting transaction because if we remember this correctly already in the beginning of this year, there were rumors on the pending transaction and they were discussed in the media and you came out with a statement confirming the transaction. So that sounds a little bit unusual. So can you give us a little bit more background? So as you know, under German corporate law, you don't have the right to defer the information. If leaks are substantiated enough that basically you have to assume that the market is aware of the transaction. So we had the leak coming out. We had a lot of legal analysis and decided that we had no option other than confirming that there was these talks between spring works in ourselves. As you can see from the timeline afterwards, it actually took a long time for us to close it. And if you see at our headhawk in the first time, you see us talking about significant hurdles. Well, you know what? The significant hurdles were there and it took quite a long time to clear. And I think this is a little bit the strengths of Merck because we did already talk about the right price for spring works, but it's also like the very thorough due diligence that we have taken in order to make sure that this M&A assets really suits us. Suits our culture is the right therapeutic areas. It's the right way of manufacturing, etc. So I hate the at-hawk, but the way I'm looking at it, having been in the capital markets for a long, long time, the worst thing you can do is to have people forcing you into decisions by making things public. And we're actually pretty proud of simply staying on course and saying, okay, so now we have to do the diligence under the watch of the public. I saw what. Interesting. So anything else from the Farrah business? Martin? No, I think also in terms of time, we have three areas and so on. So let's move to life signs. Two life signs, yeah. And we see life signs, of course, there was a big demand, especially during COVID times. So there was a supermarket environment at that time. So the question now is post-COVID. So what are the key challenges and opportunities that this business unit is facing and how do you see what's the strategy to deal with these, let's say, challenges and opportunities? So the way we need to look at our life signs business, we have the so-called process solutions business. And that is the business that predominantly had these issues about people during COVID times stocking up. That one we finally left behind. I mean, you see us returning to double digit growth in the process solutions. And it's clear why we're doing that because basically the drug preparation and are continuing. And as a result of people having used the stockpiles that they had in their inventory, now are going back to normalized order patterns. This is a game of you need to get in license very early at the point in time when the biotech is still in the drug production or drug initialization in order then to benefit from the large commercial sales that come out afterwards. So that's the key one. The other business we have is a so-called SLS business. What is the SLS business? It is basically consumables, a beard, chemical, solubils, etc., or biological ones, which are used in the R&D space. And there we have seen a little bit of headwind mainly as a result of the Trump administration going after the NIH. So the National Institute of Health. You may have seen that there was an announcement that they would cut costs by 15%. And now the recent budget was like, there will be cuts cutting of 40% of the NIH. And that has definitely impacted our sales in SLS. Now as usual with Trump, I'm sure we get to it. At this point in time, the recent announcement was like, oh, all the cuts are not happening as is. And we're going back to doing those studies that we have done. So it's yet another very noisy space where we need to see how it pens out in the future. Overall, if I look at the market and the life-sense market, it is pretty clear that like we have the mega trends that really work towards the life-sense market. Why? We have more people on this planet, at least for a while. These people are aging. More people have access to medicine. And they have a rising GDP. So that means that like you will have a larger drug consumption going into the future. And life-sense trends are all about volume, not price. That's why we feel that this is totally the market we want to be exposed to, because it's nothing nicer in business to be exposed to a good mega trend, which is basically giving you air under the wings in order to lift up. So you mentioned the Trump administration, and we probably have several aspects here that we may need to talk about. One is of course that Trump put Kennedy Jr. in the position of Secretary of the Department of Health. And it's a man who has very controversial and holds very controversial views, for instance, with regard to vaccinations and so on. And there seems to be a lot of disruption over there in the whole system. People change and also the attitude towards universities and research generally seems to change. And a lot of what you do is related to R&D, which is university work, to a large part, because it's delegated into the big universities. So how does it affect you? As I said, we do see a little bit of volume drop at this point in time in our SLS business, having said that we already seen that coming back. And then most of the R&Ds are still in the universities. Having said that we also have big farmer customers looking at this, etc. If you zoom out a little bit, we're all focused on the US biggest farmer market in the world. But overall, it's 300 million people. And I think what the world is doing right now, it is very much pivoting away from considering the US as a stable partner market and saying, okay, let's zoom out and look at what else is happening in the world. And let's be clear, there's 300 million people, but actually there's eight billion people on this planet. And what is happening, and that's maybe a few facts that we overlook, there's more research. Right now, in China, in respect to new medicine than in the US, I am really hopeful that actually be in the US, in Europe, also get our act together, because we also can step up much more. And so I think the US overall topic is one which is evolving. And the whole noise is very much leading to the rest of the world questioning how to deal with the US. And as a result, immunizing from the US market and making sure that like business models evolve outside of this interesting place at this point of time. I completely agree with your assessment. And I like also the broader view on the rest of the world. Having said that, let me allow me, please, one more little thing, and that little thing has talked about so much. I think we should mention it here as well. Terriffs. I mean, you do what 27, 28% of your business or revenues in the US, that's at least last year's figures roughly. It's always a third, a third, a third, very easy. Okay. Okay. So it's a third. So surely it must affect you, right? When the whole situation started, I mean, like any other CFO, we did lots of scenario planning. The problem is like you couldn't even get behind the new figures with your scenario planning because everything was changing all the time. So that means that at this point in time, we are basically looking at immunizing our supply chain and immunizing our production. and Merck has actually. on the back of the COVID situation, very early on decided that there is a de-globalization trend. And we already invested a lot of capex in order to establish production sites in Europe and establish production sites in China and spend a lot of time making sure that our supply chains are as low-caless possible. - Okay. - So that is of course a little bit of a margin drag. But I'm glad to have this margin drag now because I know that like I am immunized, not completely and not totally, from this tariff noise. We're not there, we're not 100% there. And if tariffs were to come, we would definitely have issues in respect to margins as a result of tariffs. But number one, there's the ability to have surcharges with our customers. So we know that tariffs will lead to inflation. And of course we will also try to push through those additional costs with our customers. And some of them we will have to eat. But this company is very much focused on immunizing ourselves from tariffs and the strategy is very much about localization of production and supply chains. And hence not now, but in the coming years, I expect that trend to continue even further. - But looking maybe back to the farmer business, what's your take on the most favorite nation rule? Which basically is saying that the US is expecting that drugs will be sold to the US by the lowest price internationally as a reference price, right? That's very simple. Put. - Should that really come? I think there will be some pretty severe changes. Because of course, farmer companies will think about, does it make sense to import into US? Does it make sense to license drug in countries where the drug prices are significantly cheaper? So as a result, it could be turmoil, but at this point in time, what I read in the capital markets is that most people are saying, it's always been on the map for many. So far, no one has found a way to do it. And of course, we need to find a way to make sure that not only the US pays for innovation, but the globe pays for innovation. - Sure. - And that intention behind it, we completely follow and believe that, like this is something that we also need to work on. - Interesting. In the matter of time, let's turn our eyes to the next business sector, which is electronics. So we know that electronics was one of your company's cash cows in the past. But at the same time, semi-contactors and AI overall is a big play and has a big role in the sector and the strategic focus seems to somewhat shifted a little bit from cash to more being the strategic imperative. So what's your view on the way forward of this business and what opportunities do you see, especially in the semi-contact area? - So the evolution of electronics is quite fascinating. It's like we have as Merck developed the liquid crystals business. And yes, indeed, it was a huge cash cow. At some point, the same story as always happened. The Chinese came in, we're able to produce much cheaper. And of course, we see a massive price decline and as a result, the liquid crystals decline meant that the cash conversion dropped significantly. Now, what Merck has done is to basically use this cash in order to transform this sector into what I would call one of the world's leading service or materials provider to the AI and advanced nodes technology. You can see that positioning because we're outperforming the market more or less by 3% very, very consistently. And why is that the case? Because we actually deliver into the most high end innovative technology, which is where you see most of the growth. Now, I like cash. And at this point in time, if I look at the sector, cash conversion is definitely something that is maybe not as strong as we want to. Why? Because it's a high-carp X, high R&D business. But being able to provide our customers with this high end material is something that we will be focusing on. Because at some point, we are pretty sure that we can really outperform there. - Interesting. I looked at recent investor relations presentations that are available on your website. And on the first page, they show your company structure with these three business sectors. And the fourth line, which says sustainability. So is that because that's a nascent new business area for you or is that just to stress the importance of sustainability for America? - It's interesting that you mentioned it. We hadn't seen it that way. We saw sustainability as the function and input to everything that we do. So as in the foundation, less than a vertical. So I think overall, let's talk about sustainability. I mean, like we believe that we simply need to make sure that this company is as carbon neutral as possible and that we need to make sure that our environmental footprint is as limited and as low as we can possibly do. And that means that we are also working very hard in producing substances that are also as sustainable as possible in order to help our customers or going along the same way. Now, as we all know, that's a topic that was very highly rated in the recent years. The trend has dropped, but overall, I think we have as humans the obligation towards our planet to make sure that like it doesn't get poisoned as much. And hence we see ourselves very much rooted in that legacy. So your sustainability goals also, you know, the ones that were formulated one or two or three years ago there still in place, like cutting a thing CO2 by 50% till the end of the decade and things like that. You're committed to these. Because yes, we say the trend seems to go, seems to be at the current time, you know, go slower on that or don't go serious on that or even to reverse it. And I'm not sure because it's not always the one who screams the loudest, does it? Yeah, if you actually look to China, their sustainability efforts are immense and they're really, really making massive headwinds around sustainability. I mean, you know what they're doing in batteries, you know what they're doing in solar. So it's not that because the US has said we don't believe in sustainability anymore, the rest of the world needs to follow. So sustainability is a perfect segue to the question of responsibility. And looking at Merck overall, you are very interesting and very particular company, right? So very old stock listed and at the same time, you're a family owned business. And because I don't know if all listeners know that, but around about 30% of Merck's equity is publicly traded and the rest is hold by the family. So the question is, how does this work actually? And what does it mean for you as a CFO of this company? How you have to steer the company under these circumstances under this very special ownership structure? Because, I mean, as you know, it's like I was a CFO of a normal quote, unquote, public listed company. And Merck doesn't feel that different. But would have been my next question. Just answer it. What feels different is like, frankly, with the family being so deeply involved, you have a supervisory board which is very, very, very informed. And the quality of the discussions at the supervisory board are second to none. I think that's something that is very helpful, but also sometimes quite challenging as a board member, because you better be prepared when you go in that supervisory board. The thing that is different from a company's steering point of view is that we sometimes can dive through times of a low share price, because we can take a strategic view, because we want to take a long-term view, and because we have the ability to basically take these decisions even though it would have potentially a negative and adverse effect on share prices. And you've seen us doing the big transformative M&A transactions. Most of the time, the capital market hated it. They came to love it later, but day one, there was noise. So I'm sure we will come to the share price in a moment and also come back to the acquisition. But let me stay for just a second at this thing with the family and the family involvement. And you said that they are very actively engaged in the company. So how does it work? You as the management, you have the responsibility to run the company, develop strategy, and implement it, and do that. How does the family bring itself into this? Is this on a daily basis? Do they tell you the strategic directors or in a practical way on a day-to-day basis? How does it work? On a day-to-day basis, not. But we all, as individuality al-members, have a monthly meeting with the family representatives. And then we're also always presenting the strategy to the family and to the boards in order for decisions to be taken. So yes, we propose it. But the family or the overall board then has the right to actually agree or not agree on the strategy. What is clear is that we have demanded, as I mentioned earlier, is that this company is supposed to be survived at least another 350 years. I like this. It's good. And if you actually think-- I mean, it's like, use ChatGPT. It'll give you the same answer. So what's the answer to sustainability into the future? Well, it's uncorrelated cash flows. It's staying ahead of innovation. It's making sure that when you see businesses, which are not [BLANK_AUDIO] sustainable to make sure that you divest them in order to free up cash to be able to invest into new innovation. Those are the things that are maybe much more pointed in a family business compared to enormous stock market business. Indeed. At the VOW, we are very close to a lot of family firms and these are ways of expressing strategic things and emissions that I've heard before. The 350 year I mentioned, that's a family thing. Whereas the stock market typically is very, very short term. Sometimes you accuse it of myopics. I don't know whether that can be said. So there can be differences between the interests of short term oriented investors who are there for the day or for the month or for their performance over the year. And the interests of a very, very long term oriented family. How do you balance that? Especially you as the CFO? Yeah, and it's an interesting one because the easiest answer is always you look at at at compensation. And the fun fact in our conversation is like we are very, very much targeted to the share price. That's contradictory now, isn't it? That's why I'm saying it's an interesting one. It opens up an interesting field. Overall, the way I would look at it is like we're very much aware that the family has certain demands and they have basically given us guardrails and which to act. But then they very, very consciously have the view that we need to be a stock market listed company because they want the investors to hold our feet to the fire. And I think that's probably smart because my my finance colleagues would point out, you know, the stock market isn't that stupid in its entirety, right? They they see, you know, and looking also have the long term also in their perspective, not just the next few days. Very true, but remember our podcast with the CFO, you and doets of battlesman and the de-investment reasons they had to deal with private. They've been private, yeah, exactly due to these reasons. So looking at the share price, it's not that good if we compare it, you know, with earlier times. The share price of Merck had its highest ever in December 2021. I think during COVID when the was some euphoric times about, you know, laboratories needing all these things and your life signs went through the roof. It's now roughly half of what it was at the point. I think roughly. So it recently went down and I think it went down in May, especially also because I think Merck missed the expectations of analysts at the with the first quarter results of this year. So what's your take on this? Why is it going like this? And what can you and your colleagues in the management team to to restore face in the share price? So of course, I mean, during COVID times, what did we have? We had a life-sense industry, which was absolutely boy and everybody seemed to have expected those peak sales growing at the same peak growth. And hence you had massive multiples, which were used to evaluate these life-sense companies. If you look at the multiples in the life-sense space, they have more or less half. So that explains more or less on 40% of our portfolio, the reason why our share price has gone down. On top of it, the other 40% healthcare as we said is like we had two biggest pipeline misses. And if I look at my multiple in healthcare, most other companies trade around 11, 12, maybe even 13 multiple. We think it's always a bit hard to tell with Merck because of the conglomerate discount. We think we're more or less trading at six times multiple. And then electronics, of course, a very cyclical business, pretty hard to value. It's also not quite the of what appears are, but I would also claim that in the COVID times also the semiconductor was a pretty peak times. What does that mean? It means that like, of course, we at this point in time have pretty low multiples. We had in my may issued a new guidance. And as you know, most of that guidance came from the changed FX rates. 80% of that was actually down to simply the euro strengthening. We expect that other companies will need to follow suit because we guide late. We were the ones who already had the ability to incorporate it. But yes, the market simply said like, okay, Merck is taking down its guidance and basically felt that like that was not a good headline. Now what do you do as management teams in my opinion is like ultimately our job is to deliver on a strategy and our business. So there's a little bit about very, very stubbornly focusing on what is the right thing of the company, making sure we take the right strategic decisions. And then hopefully at some point being able to deliver quarter and quarter along our guidance is that we are basically showing pretty hard in times of Mr. Donald Trump. Because we have FX rates. We have tariffs. We have most favorite nations. We have NIH. We have huge aberrations between China and US. So giving a guidance at this point in time as a CFO feels more art than science. But hey, that's my job. But you talked about the conglomerate may miss and my question is and I'm pretty sure you're used to this question. How do you explain the advantages of the conglomerate structure because I think the family and you as a management are fully convinced of the structure that you run. Can you give us some insights that you share with the analysts on this one. Look, I mean, as you know, shareholders are pretty short term focused and anybody who looks at our company will say if you simply listed those three assets individually, you would create a lot of value. And that's always the story. To some extent, you cannot argue against it. You can only say, look, we have the ability to do big investments, big M&A, very strategic investments, very transformative investments as a result of this conglomerate structure because if we were individual companies, we wouldn't have the firepower, which would really help us to turn the business around in times when things need a proper turn around. So I'm never going to win this argument because the short term argument is always going to be the one around well, you could create so much more value if you simply split up. And they're right. If you look at a short term, the perspective, right? The perspective. You mentioned the importance of M&A, right? And you are M&A professional firm, you can say because you do so many deals, right? And you do significant deals and you have done significant deals. So our more general question would be of course, first, what makes M&A successful beside the fact that the CFO has an investment banking background, but not honestly what what makes M&A so successful, especially in the very complex businesses that you run. To me, the biggest threat and danger of M&A is groupthink. I've seen it as a banker, as an advisor frequently, that somehow the board or CEO gets totally convinced around a theme and a topic. And as a result, desperately an urgently needs to invest in something. And then somehow it's like they plug their ears and go la la la. They do not want to listen to the critical voices. And I think to some extent the strategy and this conglomerate helps a lot because what we have established as GL as the board is something where we have balancing voices. Okay. So if the life science CEO would like to do a transaction, the electronic CEO, the CEO, the healthcare CEO will constantly challenge because to some extent we have a competition for capital and the competition for capital means that we better use our capital in the right way in order to grow the company. And that's quite helpful. I find it's one of the best discussions we have to make sure that we really challenge each other and listen to each other around. Does this make sense? Does it bring us into the future and is it the right thing? So this translates into you have a blue and a red team in the. Like I mean, as like I mean, we will always purchase into one of the sectors. Yes, sure. And that means the other sectors look at it. Very very very cold view. And that's helpful because you basically have trusted advisors around you who have the right and are challenging the person who wants to buy. And I think that's a good setup for making sure that like you don't go into this group thing and do some of the really bad M&A we've seen in the past. I wish you all the luck for the future. You've been incredibly successful over the years with the M&A, but I'm still struggling with this. So I said I've looked into some of your investment in investor relations reports and I find the individual areas that you work in incredibly difficult to understand for for someone who comes from the outside right. It's very very difficult to understand areas of medicine. It's you know, laboratory engineering and you know, all sorts of things and then you know, surface treatments of silicon waivers and then God knows what. How can one expert who is a medicine expert, a farmer expert, you know, challenge the electronic skies? How can you understand that as you see if all what's going on there. But one is about sort of like understanding the technology. But then the questions around M&A that you want to ask are more or less the same questions that you would ask in any of the areas. other case. What is the end market? What is the end consumer? What are the competition doing? Do we have the right to win? How are we using our power to deliver? How are we creating the synergies? So those things you can easily challenge. Technology, of course, I mean, I'm not going to tell you how I'm going to put Silicon Wayfer in order to create the next photonic one. That we trust our experts. That's a perfect segue to our next section, which is about your role as a CFO. So my first question is a very channel one. Being in such an R&D heavy environment you are in, with all the doctors, with all the engineers. My question is, how can you as finance be of relevance in this business context discussions when it's so much about the very deep tech questions that are around the different business models? It's my favorite one because we all are the same. If we're passionate about something we want to continue with our passion. Of course, this company needs to be very clear about where do we invest R&D dollars and where do we not invest R&D dollars. Frankly, for how long do we invest R&D dollars? That's really the role of the finance organization to come up with the framework and the challenging of our, those R&D projects that we have still leading to a positive NPV? Or are we just very much in love with the science and actually have lost the course towards the harbor? And I just now on the high C trying to find new technology, which no one ever is going to use. And that's the key role of finance. And of course, it's not easy because it requires my people to understand the technology, have relevant discussions with these engineers and with the doctors and then marry it with the finances. So, but that sounds fascinating. Yeah, that sounds fascinating. And that means that you need a very high performing finance organization that stays ahead of the game. Who doesn't need that? Fully right. So thanks for this, for this, Covid. I could agree more. But the question is, how do you transform your finance organization? We know that you have a digital transformation program running in finance. Can you give us a little bit insights on this program? So, the comment here was on the controllers, really, who need to deliver. And I think we have an amazing set of controllers in the company. The digital transformation, which I'm looking at is, actually, I'm quite spoiled coming from my previous company, where most of the annual reports and the numbers came out of the system, one ERP system, highly automated, etc. Coming to Merck, I've of course found that like we have multiple ERP systems, we maybe have different integration layers and so on. And I'm really pushing this organization towards having a much more unified reporting layer in order for people to go more into self-service. Why? Because I fundamentally believe that it's maybe in one, two, three or five years, it's not going to really make the difference what you produce. It's how you actually service the customer. And if you want to think about it, we're all used to getting from Amazon 200 emails about where exactly our package is. In the B2B world, we're pretty, we're not quite as far advanced on this one. But people do expect that. And to me, that transformation of the finance organization, of the data, of the data hubs, of the processes, towards being able to not only tell our customers when will their product arrive, where it is, where it is in the shipment, but also, of course, be able to more efficiently cross sell, will be a key determining element of how the future of Merck will go, because people will simply expect us to be able to drive that. So this is a much deeper transformation project than just the finance organization. It's really about processes, about data, about IT, about integrated IT. And as normal as like, you just need to start very, very small and then hope everybody trains the muscle of cleaning up, clean data of automation, of clean processes, in order sort of like a spider web drive it from the inside to the outside. So that basically means it's the data culture, of course, also transformation. It's data, it's processes, it's culture, it's ownership. So it's big. Yeah. And it's partly the price. And it's partly the price you need to pay, I assume, for all the acquisitions, because that's where you know, you have different systems, different, you know, databases, different definitions, different God knows what. And you know, bringing all those in line, takes a lot of time, a lot of nitty gritty work. And that's, I assume, where a lot of that comes from, right? Yeah, it's a bit like cleaning up your cellar. That's the picture I would use. You just need to start and we're sort of like one and a half, two years now into the process. And it's getting there, but it's going to take a bit of time. How is, and I mean, that's in the most of everybody at the moment. So how important is AI already for you and how will it be in the future, looking at these challenges? So AI at the very forefront of innovation, the drug discovery, etc, is super important. And that's where we're doing a lot of work. Yep. It is now because we have this my GPT tool, which is a Merck own developed tool, which is super cost-inffitioned and we're very, very proud of it. Seeping into the daily work, because we have the ability, because of its cost efficiency, to basically give it to every single employee. And what we're noticing, it is really being used every day more and more in order to facilitate works to create small agents, to create small bots. So just to understand, it's a chat GPT-based solution where you have internal data available for the Merck employees. A artificial intelligence solution, which has chat GPT, but it also has a clause on it. It also has a deep seek, but it's only accessing internal Merck service, which means you can upload your emails and ask the artificial intelligence, what should I have reacted to? You could put in your procurement contracts and have them compared. Your accounting standards are available. My accounting standards are available. I upload most of my financial data and when I sit in investor relations meetings, I simply use the artificial intelligence to ask what has been the growth pattern of this or what is the statistical aberration. So this is incredibly powerful, and I think everybody's now noticing how it really saves time for them. What we still need to do is clean up our data in order to really use it deeper in our processes. And that's what we have focused on because that's where, in my opinion, the real efficiencies come and we can really drive value in a very different way. We're already sort of like, for example, steering our healthcare people towards the doctors using artificial intelligence. But there's so much more we can do, but for that, I need to get my data culture process transformation. Right. This is fascinating. And Helena, we may have to come back for a second interview specifically on this thing because we need to look at the time a little bit and move on. And my suggestion is we move on to what you always in our podcast is the third big part of the talks. And that's you yourself. Oh dear. Oh dear. Now it comes. I know, listen as you can all switch off. Yeah. No, no, no, no, seriously. And actually, I want to start with a pretty personal question. You come from a family of senior managers of executives, the clay dynasty kind of, your father was a senior executive. He was a board member at BFF, actually CFO of BFF, BFF. Your uncle was here in this company, the CEO for a long time. And you're even going back further, your grandfather and I think even your grandfather were executives at that scene. You see, I did some research on that. There's something with the DNA. Yeah. No, my question is, you know, how, I'm sure others listeners will find that interest. And so when you were a child growing up on the table, you know, at breakfasts, that were already discussions about strategy, finance, M&A and big things and leadership and stuff like that. So it's interesting this question. And I've sort of asked myself, and I of course get asked all the time, so how does that work? And just in preparation of this interview, because I kind of expected this question could come. I used our GPT and said, okay, so how many children of leaders become leaders? Very few. Very few. Yeah. And then I said, so can you tell me, so if you have somebody who found a company, how much is actually passed on to this first generation, into this second generation? And I thought it was pretty shocking. 30% first generation managed to keep the company 12% in third generation. So it can't just be about being at the breakfast table and listening to somebody about strategy. And frankly, at those times, when I was small, it's slightly different now, but people would travel a lot. You didn't have all the means of technology. And so I actually grew up with a pretty absent father. I was working. Not there. Again, we can all speculate what is it? And I think it's to some extent this complete acceptance of total failure. Of total failure. That's an unexpected step. I would have explained. did you know total performance orientation or something and that but no I think actually every time I observe people who can really outperform it is because when things go horribly wrong they have a mechanism and a mean to say like okay it just went horribly wrong you know what let me learn from those mistakes and get myself out of the hole I think that is more or less that we really have been taught not about sort of like performance performance metrics it's really about like you are who you are things can go wrong so what make sure you understand why things went wrong and then fix it for the next time so it's a word that is being used very often today in these days it's resilience right it's kind of you know strengths in hard times it's it's resilient but it's also being very humble because you know how does you feel pretty bad about yourself because you really really really gotten something totally wrong and then someone comes to you and says like you know I told you so and by the way you should have done that that means like you need to really accept those advices but I don't know I can't give any great tips so but it's also interesting looking at your CV so you studied physics you studied at the LMU and also in Cambridge and then you later transitioned into investment banking so my first question is was there a plane A and then there was a plane B and and what is it that you took away from your study of physics that you are using on a daily basis in your CFO job today and that's a big question I could probably spend half an hour explaining it overall I had really the freedom to decide what to study and I decided I wanted to understand the world and I thought understanding the world could be law could be philosophy or could be physics my entire family are amazing lawyers so why go into competition philosophy you never get an answer so physics seemed pretty straight now the issue was if it's based management yeah evidence based management so the issue was like when I then looked for a job it was pretty hard to find a job in the field that I studied at least in Germany because it's a few years back females studying physics would be like total abnormal species and you don't want abnormal species in your area and luckily enough I did study in the UK so the UK actually gave me the option to sort of like go into banking because there's much more normal for people to have studied something else than that I actually did the profession and what is the one thing that I really learned from physics one is really this desire to go deep and to understand the second one is to always be able to sort of explain how I get to an answer and the last one is I have that little bit of arrogance in me which is if I don't understand what someone explaining into me it's pretty unlikely that it is because I'm stupid and it gives me the right to ask yeah very good yeah very good that's for sure so you were pretty good you were trained to avoid total or survive total failure but you were actually pretty good at investment being at least you were successful in terms of hierarchy ended up at credit Swiss I think on the on the European leadership level what made you change to go into a very very traditional corporate environment like the one you went to Vonovia so you return from the dark side it's it less so I mean I loved investment banking but at some point you felt like you have done all the advisory that there could be okay as in how many M&A's do you want to follow and the one thing that fascinated me and I'm pretty sure you know the feeling as an advisor yeah you go to a client they ask for your opinion you spend a lot of time thinking about what would I do if I were in their shoes you give the best possible advice you can give and the client says oh thank you very much very interesting but I'm going to do the opposite and what fascinated me was really about okay so how good is my advice have I really saw through have I am I really seeing everything why our clients doing that and to some extent as a banker of course you can only advise from the capital markets shareholder side but to some extent and there's a stakeholder view which would maybe stop clients from following your advice but sometimes the client just sort of like didn't want to do it and that's what fascinated me trying to see okay would I actually follow my own advice and then be able to push through the entire action until the end okay I can see that actually you were first in a supervisory role at Merck and then moved into the executive role that's not so usual I mean it happens but it's not very very usual it was extremely helpful for me because in the supervisory role of course you learn about all of the businesses the complexity of the businesses the pressure points you learn about also how does the governance framework work and so on so actually it gave me head start in my CFO job Merck is complex if you don't come from the inside you do need quite a bit of time to being able to navigate this universe and I mean I jokingly said it's like I'm more or less at the at the cusp of being entered and allowed into kindergarten in Mark terms there's some truth to it yeah you need to spend a lot of time understanding this organization looking at the complexity I fully fully agree so that's fair statement so yes time is running fast we are coming actually to our closing and we have a traditional question which is around broadening the view is there a certain book recommendation that you would like to give to our listeners so I knew this question was coming and then and then I was like kind of thinking okay do I come up with a nice book that everybody should read but being true to myself I should also be perfectly honest here so what I find is like in terms of business books I don't know how about you feel about this is like I read the first ten pages think it's an amazing thesis and the rest of the book gets incredibly boring because they're just repeating it in the same words again so what do I do is like I spend quite a bit of time using when I want to get deep into topics and I do that most of the time working on the internet and trying to get research I love Google scholar it's amazing what you could find there so I'm not a big fan of business books let me be clear now if you need a book recommendation to wonder I'm reading right now as you may know I'm a little bit into horses it's about a gizunder who vielleicht gemacht that's really something that can help you and further you and really really broadening your universe let me let me repeat that because soon to who for light that that would be an English healthy hooves made easy made easy yeah a very special topic yeah but we can put it this way if there's one let's say major drum beat in your life it's too really understand how the machine works is is that how we can put it yeah and that's what I love doing it's really really all the way really to to the bottom of it and and and basically getting very firm in your opinions in order to make them good decisions wonderful Elena many many many thanks to you that brings us to the end of this podcast episode and many thanks to you Elena for making time available and for talking to us this has been tremendous fun I really enjoyed every minute of it thank you I hope you listeners also enjoyed this and as always please stay tuned we look forward to being in touch with you again very very soon thank you very much also from my side Elena it was a pleasure we are here in Darmstadt this is an amazing place at the innovation center so thanks also for having us here thank you very much to visiting us that was leading corporate transformation the podcast by V. Ha'u'aurobysime School of Management powered by PWC editorial team Marvin Shunah and Zimhan Girlach