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Versum Materials, Inc. (VSM) Q3 2019 Earnings Call Transcript

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Versum Materials, Inc. (NYSE: VSM)
Q3 2019 Earnings Call
Nov 14, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Dear ladies and gentlemen, welcome to the Merck Investor and Analyst Conference Call on the Third Quarter 2019. As a reminder, all participants will be in a listen-only mode.

May I now hand you over to Constantin Fest, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir.

Constantin Fest -- Head of Investor Relations

Thank you. Molly and a very warm welcome from my side to this Merck Q3 '19 results call. My name is Constantin Fest, I'm Head of Investor Relations here at Merck and I'm delighted to have here today with me also Marcus Kuhnert, our Group CFO, as well as Udit Batra, Life Science, CEO of Merck.

In the next few minutes, we'd like to walk you through key slides of this presentation roughly half an hour is my guess and after that, we'd be happy to take all of your questions. Having said this yeah, I'd like to directly hand over to Marcus to kick off this presentation, Marcus.

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

Thank you, Constantin. Good afternoon, warm welcome to our Q3 earnings call also from my side. I am starting on Slide five of the presentation looking on the highlights. Overall, Q3 was a good quarter for us with organic sales growth of 5.7% at Group level reflecting another strong print in both our life science and healthcare business sectors, more than offsetting the expected decline in Performance Materials.

Group EBITDA pre grew by a healthy 10% organically, mainly due to the favorable sales development, continued cost discipline across the board and further deferred income from GSK in Healthcare. On Versum most of you will have noted that we successfully closed this acquisition early October and hence well in line with our original plans. Integration has already started and we are proud to welcome our new colleagues on board. Finally, we are upgrading our full year 2019 guidance for sales and EBITDA while keeping it stable for earnings per share pre.

Specifically, we now expect net sales in a range between EUR15.7 billion and EUR16.3 billion, EBITDA pre between EUR4.23 billion and EUR4.43 billion and earnings per share pre between EUR5.30 to EUR5.65. Note that the uplift at the operating level stems from the expected first time consolidation benefits of Versum or to put it differently, we fully confirm our organic growth ambitions of 3% to 5% for sales and 10% to 13% for EBITDA pre and I will come back on the stable EPS pre corridor later.

So now let's take a closer look at sales and earnings contributions by business on Slide number six. Life Science had a stellar performance with 10% organic sales growth driven by all businesses and regions and even slightly exceeding the already strong growth rates from Q1 and Q2. However, we would also caution you to extrapolate this into the fourth quarter, Udit will elaborate on this later in the call. Healthcare also headed very nicely with organic sales growth of 8%, the highest in almost a decade reflecting moderate growth in the base business and driving contributions of our recently launched products Mavenclad and Bavencio.

Performance Materials on the other hand, weighed on our overall performance, with an 11% organic sales decline mainly due to the expected decline in liquid crystals as a capacity effects from recent panel manufacturers investments have finally faded out. On earnings the 10% organic growth in EBITDA pre was largely driven by Healthcare and Life Science, more than offsetting the declines in Performance Materials. Finally, a brief comment on FX. As you can see from the slide currencies have been a tailwind for us and our business sectors, and for the Group as a whole with a mitigating effect from hedging losses showing in the corporate and others line as usual.

On Slide number seven, turning to the regional split. I'll keep it brief by saying that we have continued to see organic growth across all regions. Growth rates to be rise somewhat from one quarter to the next and in Q3 we had LATAM standing out with 16% growth while in absolute terms, Asia-Pacific remains the largest contributor to growth.

Moving on to Slide number nine, then a couple of points I would like to make on the headline figures. While we are reporting strong sales growth of 8%, even stronger EBITDA pre growth of 15% in Q3, you will have also noticed that EPS pre increased by only 2% with the main driver being a higher negative financial result, and I'll come back to this in a minute.

I would also like to point out that regarding non-recurring income we had a pretty clean quarter, earnings were only supported by another EUR30 million of the GSK upfront payment in Q3 and we expect a similar number in Q4. Also note that this number can vary depending on trial dynamics in our strategic alliance with GSK. Further on the topic of non-recurring income in healthcare you will also remember that in our last earnings call, we guided you to EUR100 million to EUR150 million in H2 and we are confirming this today.

Operating cash flow increased close to 30% in the third quarter, while net financial debt rose by 9% since the end of December, mainly due to IFRS 16 dividend payments in temporary investments of cash proceeds from the consumer health disposal compared to the status by the end of June however, we were able to reduce financial debt by $0.5 billion.

On to Slide number 10 and a few comments on our reported figures and the financial result in particular. You will see that the financial result of minus EUR135 million is substantially lower compared to prior periods, which in part is due to higher interest expense related to a full quarter of the Versum financing. That said, we confirm our 2019 interest result guidance of EUR260 million to EUR280 million updated in August, but would point you to around the higher end of the range, a mid finalization of the Versum financing, which includes also a one-time charge for early redemption of the high coupon paying bond immediately after closing.

The main driver behind the lower interest results though is a meaningful drag from higher LTIP provisions. The LTIP related track was in the low to mid-double-digit million euros both year-over-year and quarter-over-quarter and mainly reflects the outperformance of the MAC share versus the DAX.

Please also note that especially when we see decoupling of the MAC share versus DAX, we may have a respective impact on the financial result. In the third quarter this was one of the main drivers behind only moderate EPS growth as explained before. Finally reported EPS also reflects a higher tax rate due to reserves for future tax audits, but we are confident to lend the year in the guided range of 24% to 26%.

With that, let's move on to the review of our business sectors, starting with Healthcare on Slide number 11. Healthcare had a strong quarter, with sales up 8% organically, given solid growth in our base business path with further uptake of recently launched products Mavenclad and Bavencio. Within our base business, we were pleased with the continued double-digit growth of our General Medicine portfolio as well as the healthy dynamics of Fertility and Erbitux.

Also note that our N&I franchise containing Rebif and Mavenclad saw positive organic growth already in the third quarter and we expect further rising contributions in Q4. Remember that was one of the things we have basically put on the table in August that we expect the tights to turn in the second half of the year and we have now already seen positive growth of 2.3% organically in the third quarter.

On our new products, given the year-to-date performance, we slightly increased our guidance for Bavencio, now expecting around EUR100 million in sales in 2019 compared to high double digits previously, and we become also more precise for Mavenclad now aiming for around EUR300 million, compared to up-to-mid three-digits before.

With regard to the strong margin expansion in Q3, please note that next to IFRS 16 this has been supported by EUR30 million of deferred income from GSK, but also another sequential uptick in underlying profitability due to stringent cost management. Finally, a quick update on non-recurring income in 2019 as announced earlier, given the EUR30 million from GSK recorded in Q3 our unchanged guidance for H2 leaves us with some EUR70 million to EUR120 million in the fourth quarter. This consists of another EUR30 million from GSK. EUR35 million for the recently accomplished RCC approval of Bavencio in Europe, another EUR20 million for the anticipated RCC approval of Bavencio in Japan, which we expect to happen until the end and potential support from additional pipeline and portfolio management measures.

As such, we confirm our 2019 guidance for healthcare and with this, let me hand over to Udit.

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Thank you. Marcus and a very warm welcome from my side as well. I'm now on slide number 12 with a review of our Q3 numbers. Life Science had yet another very strong quarter cracking the double-digit mark for organic sales growth for the first time and this is driven by a broad-based performance across all of our businesses and our regions.

Process Solutions was again the largest contributor with roughly 16% organic growth, matching the strong trend that you've seen in the prior quarters and this is driven by sound biopharma end markets. Applied Solutions also had a very good quarter with sales up almost 7% organically, so slightly above the first half and with key drivers including our advanced analytic and lab water portfolios.

The Research Solution delivered a solid 5% in terms of organic sales growth so somewhat above the trend and really good demand from our workflow tools business and a strong contribution from e-commerce. Regionally, we saw double-digit organic sales growth in APAC. Asia-Pacific and Latam and a high-single digit sales growth in North America and Europe.

EBITDA pre came in at EUR531 million, this reflects an organic growth of roughly 14% and increased margin of 31%. The gross margin was slightly down year-over-year in the third quarter, but it's still tracking nicely ahead of last year, for the nine-month period and we are pleased to see this operating leverage across all our OpEx lines.

Finally, backed by our strong nine-month performances slightly upgrading our 2019 guidance for Life Science but we would caution you to extrapolate the very strong trend of prior quarters into Q4. This has given the lumpiness in the business across quarters and this is really nothing that is uncommon. With that, let me move to Slide 13 to start a slightly deeper dive into this business. So now I'm on Slide 13, I'd like to zoom out for a few minutes and then and reflect on the fundamentals of our business before zooming in again. We are operating in a truly attractive environment, which is characterized by long-term secular growth trends, such as growing and aging population, rising regulatory trends as well as the science and technology driven progress across multiple disciplines.

Today, we are looking at life -- Global Life Science Tools market worth EUR170 billion in sales and forecasted to grow in mid single digits with established players like us generating EBITDA margin, well in excess of 20% on average. We have three business units, namely research, process and applied each of them with their own characteristics and had distinct subset of growth drivers.

We've shared and discussed these with you in detail at various occasions, including our recent Capital Markets Day. So I really won't bore you with reading them out from the slide, but let me pick out one prominent example which is familiar to you, but still describe the drivers of our industry, extremely well and this is the ongoing rise of biologics.

It is really a brilliant time to be in Life Science, in my two and half decade association with pharma. I don't remember a time when so many effective approaches and mortalities including cell therapy, gene therapy, mRNA, siRNA based approaches have all made into the clinic, almost 33% of biologic's pipeline consists of these novel modalities today.

We not only need new research tools to interrogate these complex molecules, but it also need new and efficient manufacturing processes, regulatory processes and collaboration models to get these to patients in need. We as Merck are right in the middle of this trend with our links to the global research community. Almost 1.6 million researchers come to our e-commerce site, we are also a leading provider of consumables and hardware for biologics production. So the market is indeed attractive and dynamic and we are positioned quite well in it.

Now I'm moving on to Slide 14, in this attractive market we really have challenged ourselves to set the benchmark for performance. I was interested by our Board to take over as CEO of the Life Science business back in April 2014, and together with my team we have developed and executed a strategy that has included the largest acquisition in the 351 years history of Merck and the largest to date in the tools industry. I guess, it would become the second largest in the industry if another one closes.

Our strategy included very specific choices that not only deliver the synergies from this acquisition, but we also allocated resources to accelerate the growth of the business and let me give you some examples. I mean, you will remember single use bioprocessing, the single-use business was growing roughly 20% organically back in 2016 and with investments to standardize production in our Danvers, Massachusetts site and to increase our capacity both in Danvers and in WuXi City in China, the single-use in hardware business grew close to 30% in 2018. So from 20% to 30% in a matter of two years.

Back in 2016 and early 2017 and you will remember, if you were following Sigma-Aldrich in the prior years the lab and Specialty Chemicals business was flat and declining. This has been turned around with really strong execution from our teams around specific focus on bulk product sales, launch of Sinthia a retro synthesis software and of course better performance on e-commerce.

And finally, to give you an example from Applied Solutions, we felt we were not the best owners of our flow cytometry business where we lacked scale, and we're somehow underperforming so we divested this business about a year ago. So what you can see from this chart is a result of some of these deliberate choices. Every year since 2015 we have outperformed the market in terms of organic sales growth and here I just picked two other scale competitors by this time a lot of our competitors have already reported, so you see the nine-month results also on this chart. And you can see that at this point year-to-date while the organic growth of key competitors is between 5.5% and 6.5%, clearly more dynamic than the last two years we've hovered around a 9% organic growth mark and the team has remained really focused on cost management. So you'll see a steady margin expansion of 300 basis points to 400 basis points and there is such a lead versus competition. Even if you penalize us with 2% to 2.5% of corporate costs from the 31.1% that you see in the first nine months of this year. So all in all, I think it is a safe assumption to -- safe assumption that our teams are performing at a rather acceptable level.

Let me move on to Slide 15, and cover Q3 for each business in a bit more detail. Process Solutions has been the stand out again, with roughly 16% growth this quarter and if you were to look a bit deeper bioprocessing grew in the low '20s and services in the mid teens. Geographically, really nice performance across the board, but again I would mention China and here the organic growth is in the low 40% range. Yes, I think you heard that right, and very often this is due to large orders that come in some quarters but low 40% organic growth is quite nice for China as well.

We augmented our portfolio in the Process Solutions business with the acquisition of ProcessPad to collect data from all our unit operations in the Bio Continuum Platform in a single format. In gene editing and novel modalities you would have read the acquisition of FloDesign and we continue to file patents and the -- patents of CRISPR Cas9 and we recently signed a deal with Evotec for use of CRISPR Cas9 IP.

For Research Solutions, the growth of the lab and separation workflow tools business is actually very endearing for me, this portfolio has hovered around 2% to 3% growth for a very long time and this year we've really doubled -- almost doubled that growth rate. E-commerce and Research Solutions contributes two times the rate of offline growth. And finally, just to point out China again, China is growing in the mid-teens even for Research Solutions in the third quarter, where we have recently announced a partnership with Alibaba to expand our e-commerce platform for smaller customers.

And we move to the third business, Applied Solutions, where advanced analytical -- the advanced analytical business grew double-digits in Q3 bringing it to high-single digits year-to-date, lab water continues to benefit from the solid consumables that followed the launch of our Milli-Q IQ 7000 platform launch last year. And geographically, a really nice performance with high single-digit -- high single-digits in emerging markets and solid mid single-digit growth rate in many mature market. Here too, we augmented our portfolio with the acquisition of a software company called BSFN to connect all instrument in a laboratory. So all in all, a pretty broad based strength across both geographies and portfolio.

Before I hand it over back to Marcus. I wanted to spend a bit of time on sharing some of our beliefs and investment opportunities for the future. This is all on Slide 16 and I want to highlight three trends that we really believe are benefiting us quite a bit. Starting with the first one, this is a complex biologics or novel modalities, just as a reminder that market growth in mAbs is forecast to remain in the low teens to trend up 2023, while those of novel modalities for example, cell and gene therapy are expected to grow in excess of 30% to almost double that rate of mAbs.

Against this backdrop, we've expanded our single-use and dual facility in Danvers, Massachusetts as I mentioned earlier, we opened an assembly plant in Wuxi China, which already within six months of opening has full utilization. So that's been -- that really reflects strong, strong demand in China. We've also expanded our viral manufacturing site in Carlsbad, California and we have successfully launched our antibody-drug conjugate express offering for rapid production of ADCs.

Digitization is the second trend that of course is affecting many industries and is also shaping many of our day-to-day activities as well as many of our client interactions, we of course are very well positioned with our leading e-commerce platform sigmaaldrich.com and we constantly invest behind this to grow its agility and greater customer centricity.

Today, of more than 90% of the old Millipore products are available online while year-to-date, we've seen sales through the online channel growing double the rate of the offline business in each of our three businesses, and we believe this trend is likely to continue. Last but last least, I've already mentioned, quite a bit about China, we're seeing superb growth across Asia, these days and we believe this market is clearly in its early days and with many projects to come as we look ahead.

We have significantly invested in manufacturing and distribution in Nantong in China, while successfully driving commercial expansion in Tier 2 cities and we continue to leverage our strategic e-commerce partnership with Alibaba as I mentioned before. So all in all, we feel confident that we're putting our capital to work in the right spots and we will hopefully see these strong results going forward. I'll be happy to take your questions at toward the end of the call and to provide additional color during the Q&A, but for now, let me hand it back to Marcus.

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

Thanks Udit. I am now on slide 17, with regular Performance Materials, overall PM had a soft quarter, but in line with our expectations and the guidance. Sales in Q3 declined 11% organically with all businesses down year-over-year. Please note in this context as we are delivering on our promise for increased transparency by showing growth rates now for each of the three business units in PM for the first time.

Display Solutions was the main driver with a 15% organic decline as strong growth in OLED was more than offset by declines and Liquid Crystals against tough comps. The numbers are reflecting, the expected end to the extensively discussed temporary boost we have enjoyed from capacity ramp up projects of several panel manufacturers in China.

Semiconductor Solutions recorded an organic sales decline of 3.5%, which is somewhat better than the market improved to a good position, which we believe will be further enhanced by the recently accomplished acquisition of Versum. Surface Solutions was down by 6% organically in terms of sales reflecting with end markets and automotive and an increased industrial portfolio focus amid of our Bright Future program. EBITDA pre came in at EUR177 million, implying a decreased margin of 30.5% and a 19% organic decline despite stringent cost management.

Finally, we are confirming our guidance for Performance Materials, although based on what we have seen year-to-date we believe that lending in the lower half of the range is more likely.

On to Slide number 18 with a few remarks on our balance sheet, the increase of cash and cash equivalents in the first nine months of the year mainly reflect the financing measures related to Versum, which will have on the balance sheet as of Q4. We are currently going through purchase price allocation and we will provide guidance on related DNA with our full year results in March. That being said, net financial debt has increased from EUR6.7 billion to EUR7.3 billion since December, as free cash flow generation was more than offset by effects related to the first time adoption of IFRS 16, dividend payments and temporary investments of cash proceeds from the consumer health disposal. So our net financial debt to EBITDA ratio as per end of the third quarter stands at 1.8% while following the closing of Versum acquisition we expect this ratio to be around three times by year-end.

With that, let's take a closer look at the cash flow statement on Slide number 19. The strong operating cash flow is mainly due to favorable changes in other assets and liabilities reflecting among others. The milestone payment we received for RCC approval of Bavencio in the US, the P&L effect was in the second quarter, the respective payment now entered our books in the third quarter. The investing cash flow hence remained pretty stable while the much higher financing cash flow obviously reflects the previously mentioned financing measures related to the acquisition of Versum.

With that, let's move to the outlook section. I will start by discussing as usual, our key earnings drivers for 2019. For healthcare, we told you on August that we expect organic growth in the N&I franchise as of the second half and in fact, as already mentioned, we have delivered this already in Q3 and expect further rising contribution in Q4, which should definitely be supportive of our mix in sector margin going forward.

Staying with healthcare, we confirm our guidance of EUR100 million to EUR250 million of non-recurring income in H2 with EUR30 million from GSK recorded in the third quarter. For Q4, we expect another EUR30 million from GSK plus total of EUR55 million for Bavencio milestones and potential further support from pipeline and portfolio management measures. Moreover, we aim to become less dependent on non-recurring income as of 2020 while our focus on cost will continue. As such, we confirm our guidance for about stable R&D expenses in Healthcare in 2019, while aiming for at least stable to slightly declining R&D and marketing and selling expenses in 2020.

Note that we have moved the R&D piece from reducing to supporting factors as to illustrate our increased cost focus, while still investing into our strategic and promising pipeline projects. For PM we expect a significant decline in Display solutions seen in Q3 to continue in Q4, as reflected in our guidance. We also stick with our ambition that 2019 will be the sectors tough year, excluding Versum. However, this will to some extent also be dependent on the overall market environment, both in liquid crystals where we expect ongoing structural declines in semi where we continue to anticipate a return to growth in 2020.

On Versum and this is new, we obviously expect positive earnings contribution following the recent closings. Last but not least, we expect ongoing strength in life science and a slightly upgraded to sector guidance accordingly, but note that we expect Q4 not to be as strong as the prior quarters as Udit has explained to you earlier.

Coming to the Group guidance on slide number 22, based on our good nine months performance and successful closing of the Versum acquisition, we raised our outlook for sales and EBITDA pre, while keeping it stable for EPS pre. Please note that in guidance terms we include Versum only at group level and not in PM, is to make your life easier and allow for a like-for-like comparison. Organically, that means without Versum and FX effects we fully confirm our Group guidance for sales and EBITDA pre, while from a business sector perspective we pointed to the lower half of the range in Performance Materials, confirmed for healthcare and slightly raise it for life science.

On Versum as communicated with the closing early October. We factor a contribution to year-end of EUR270 million in sales, EUR80 million to EUR90 million on EBITDA pre and EUR0.11 to EUR0.14 EPS pre. It is important to note, that the EUR0.11 to EUR0.14 in EPS pre, do not include the respective interest expenses for the vessel acquisition financing, because we have given -- or we have factored this in August already in our financial result guidance for 2019 as a financing basically was done at this point in time. This is important to mention because eventually when you do the calculation, you come to a somewhat lower number of EPS contribution of vessel.

Also you may wonder why we have left EPS pre guidance unchanged, there are couple of drivers at work here including higher LTIP provisions and higher interest expenses were for the latter. We now point you around the higher end of the guided corridor, and for the avoidance of doubt, we obviously still expects the Versum acquisition to be immediately accretive to EPS pre as just noted. On a FX, while we now expect slightly more tailwind on sales, earnings remained less affected due to hedging.

And with this, we are happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] We will take our first question today from Richard Vosser of JPMorgan. Please go ahead, your line is open.

Richard Vosser -- JP Morgan -- Analyst

Hi, Richard Vosser from JPMorgan. Thanks for taking my questions. Three please. First question just on Mavenclad, you very helpfully gave us the splits between North America and the X new, in North American sales on the last call, I wondered, if you could give us that split, this quarter and maybe give us some updated dynamics on new and returning patients in Europe.

Second question, just on China in Healthcare, maybe you could just talk about the potential for tendering impact, so all the four plus seven tenders on Concor, Euthyrox, and Glucophage, when we might anticipate impacts could that be in '20?

And then final question on Life Sciences, perhaps it sounded like China is very, very strong and we should think about the maintenance if those growth trends, but could you give us any help around any bolus characteristics around the Chinese demand. Is there any sense of rationalization of the biotech players products or is this for a time, a long time in the future. Thanks very much.

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Hi, Richard. Thanks for your questions, I would start, with Mavenclad's slipt Q3 was one of your questions. You can think about that we have in the third quarter in total, EUR89 million sales and we have to split roughly one-third to North America that attributable to Europe and let me also mention that we have in both regions seen a positive sales growth dynamic in the third quarter. So very satisfactorily picture, a little bit, couple of more words.

On the dynamics in Europe, so we had very good adherence with -- round about 90% of the patients coming back in the second year and, yeah, as I said, favorable demand dynamic in the ex-US sales for the third quarter. Moreover approval so far, granted in 69 countries with more than half of these countries where we get meanwhile reimbursement.

Last but not least, Germany, we saw for example a nice market share uptake sequential increase now as a major market in Europe to 17% within the last quarter. And also, Italy and Spain, we have made further progress and there we are -- we're now reimbursed and we see also an increasing contribution of smaller countries.

Your second question China in Health care. So let me first elaborate a little bit. So this volume based procurement thing, just to reiterate, we have seen no effect on us with the so-called Wave one of this initiative that has started recently. However, there is good reason to believe that especially with Glucophage and Concor we could be in included in Wave two. We expect at the moment that we will have more details on that until end of this year.

However, we do not expect an economic effect on our numbers on our sales, before half of 2020. So any kind of sales impact you should expect, if we are included in ways too, only from H2, 2020 onwards.

Let me also say, we are carefully watching the development and we will definitely affect in everything what we know and see into our planning and thus also into our guidance for 2020. We would expect that the price cuts are quite relevant, but we would also expect that those will be partially offset by the strong volume growth we have already seen in recent quarters. So, yes, there will be an impact on us, but don't forget, I mean, China will remain a strong contributors to our company's growth, because we have other compensating factors in China, like, for example, the strong growth with Erbitux since we have made it finally to reimbursement list.

With that, I would hand over to Udit, for question number three.

Thank you, Marcus. Richard, thank you very much for your question. I think, first, just a couple of fact, we have in fact seen acceleration in growth, in China over Q3. In fact, Q3 is in the low to mid '20s, overall for the organic sales growth. And if you remember, I said something in excess of 40% organic growth for Process Solutions, that means, that research and applied we're also growing in the low teens. So really broad based growth and your question then is well, do you see this as a one-time impact or do you see this slowing down. Let me just give you a couple of specific examples that makes us confident, on the Process Solutions side, we opened up a assembly center for single use in Wuxi city less than six months ago, it is completely full.

So here we can't assemble things fast enough to ship to our customers there. From a Research Solutions perspective and Applied Solutions perspective, you would have seen that, we recently signed a deal with Alibaba to reach some smaller customers and that business has picked up very, very nicely, e-Commerce. The e-Commerce platform is doing extremely well, with our research and applied customers in China, especially Tier 2; Tier 2 customers. So, we see really no signs of slowdown, I mean, of course, especially with Process Solutions and bioprocessing. It's a little bit of a lumpy business, where there can be large orders one quarter versus the others. So I would not get used to the 40 plus percent -- 40 plus percent organic growth every quarter, but you can safely assume that China is our strongest growth market and we expect it to remain so for a while to come.

Richard Vosser -- JP Morgan -- Analyst

Very kind. Thank you very much.

Operator

Our next comes from Joseph Lockey of Morgan Stanley, please go ahead.

Joseph Lockey -- Morgan Stanley -- Analyst

Thank you. Marcus, thank you on Healthcare P&L in 2020. You said we should expect other operating income to be less than in 2019, but your bintrafusp development partner said earlier today that they might be paying you the full EUR500 million development milestone in 2020 based on the possible interim read with the long data. So, does this mean that you would not book a development milestone within other operating income, or is it your base case is that you will not receive any development milestones to bintrafusp in 2020.

And then Udit, you guys cautioned on extrapolating Life Science revenue trends. You just launched a very tough comp with 10% organic growth and just flagged a number of quite strong attractive trends, consensus of 6% growth for next year, which seems quite conservative. China stands strong, but are you seeing any areas of weakening demand to suggest growth materially slows. Thank you.

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

Yeah, Joe, I start with your question on bintrafusp. So, obviously, when we say that 2020 for liquid crystal, similar to the upfront payment that GSK has paid to us in February this year, also the milestone payments of up to EUR500 million will be recorded as deferred income over the period of working together and over the period where we incurred costs in the context of the collaboration. So that means that even when we will be or would be eligible to those milestone payments we would recover only a fraction of that up to EUR500 million into our P&L, more details to come at a later point in time.

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Super. Joe, let me take your second question on Life Science. As you can imagine this question has come up before as well and this is one of the reasons why we showed you the market growth as well. Right, so if you look at -- and by this time, you would have seen that most of our peers have reported and the growth rates are between 4% and 6% and closer to 6% this quarter, given the strong dynamics in the market, in that market, we are definitely on the high end, we are well in excess of 6%. So your question is a fair one.

Now that said, while the market is 6%, we will -- we do believe we can exceed those growth rate. For next year as you think about comps, they do get tougher, and let me just take an example of Q4, I commented on this earlier, if you go back to last year Q4 was the highest quarter ever for us in terms of absolute sales about EUR90 million above Q3 of the previous year. So that makes the Q4 comps, a bit more difficult for us as for the balance of the year and the same logic applies to next year, the stronger our growth this year the comps become tougher.

That said, I also don't want you to walk away with the message that we see any weakness in demand or any weakness in our business. We don't see that, but I would just say the comps get get tougher as you continue to outperform, and this kind of outperformance, while we are happy that we're outperforming the market by this much, I think one has to be a bit pragmatic about how much you can sustain. How much lead you can sustain for the long term.

Joseph Lockey -- Morgan Stanley -- Analyst

Okay, thank you.

Operator

Our next question comes from Florent Cespedes of Societe Generale. Please go ahead.

Florent Cespedes -- Societe Generale -- Analyst

Good afternoon, gentlemen. Thank you very much for taking my questions. Three quick ones. First, on Healthcare on Gonal-f, could we have more color on the performance of this product in US and Europe and regarding China even though some of your competitors highlighted that the injectable products will not be impacted either in risk, what's your view on this Gonal-f in China.

Second question is on Performance Material, you -- in Q3 outperformed the market, the semiconductor solution is minus 3%. Could you share with us what's your view and on your ability to outperform the market following Versum acquisition given the product mix from this company. And last question Performance Materials again on OLED, you mentioned that the growth is slowing down a bit. Could you maybe share with us which are the reasons behind that. Many thanks.

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

Thanks for your questions. So I'll start with your two PM questions. Yeah, so first of all, you are right, Q3 so our semicon was down minus 3.5% organically and that is slightly ahead of the market, if we take for example the MSI index as representative for the market, the MSI index for 2019 is supposed to decline in a range of minus 7% and here at the moment we are indeed doing better.

When we look forward, of course, let's say we don't have a crystal ball here, but what I can tell you is that we continue to believe in the mid to long-term trend of the industry and with the semiconductor materials market mid-term growing in the mid-single digits and when we look, let's say to 2020 we see at the moment some signs of recovery already, when we talk to customers, when we talk to suppliers, when we listen to the markets, also MSI forecasts point to a moderate growth of around 2% into next year and when we follow let's say the track record that we have -- that we always outperform a little bit the MSI Index in the past and if you project this to the future, we should see some growth in 2020.

And to your -- to the second part of your question, of course, Versum is supposed to help us there, because we believe that the two portfolios are very complementary. Our spin on dielectrics combined with Versum's strength and deposition materials, we are both quite decent in silica that from my point of view will bring us in a good position actually to have a successful 2020 and beyond.

On your second PM question on OLED. I can only say that we're continuing enjoying strong growth in OLED in excess of 20% organic sales growth rate. I mean it was a little bit higher in Q1 and Q2 that's true, but Q3 was still above 20%. So coming from a basis of already EUR100 million plus by the end of 2018 this is meanwhile, nice more and more sizable business, with also a very healthy margin I pointed out already in August that OLED is no longer our margin dilutive, neither to the group nor to PM as a division.

So now to your question on Gonal-f, which is a little bit more tricky. So in North America, we have seen double-digit growth key contributor, there very positive development and there in the US at least biosimilars is much less of a threat to us than for example in Europe. In China, very attractive market but we see somewhat an economic downturn, so we are not too bullish at the moment, but still a good business and overall we definitely stick to the mid-single digit growth until 2022 for our fertility portfolio. And don't forget, also fertility is in most regions an out-of-pocket business so means not being reimbursed.

Florent Cespedes -- Societe Generale -- Analyst

Thank you very much.

Operator

We will take our next question from Wimal Kapadia of Bernstein. Please go ahead, your line is open.

Wimal Kapadia -- Bernstein & Co -- Analyst

Great, thanks very much for taking my questions. I am Wimal Kapadia from Bernstein. Could you first on PM, your previous guidance for PM margins was around 30%, given the change in business mix. How should we think about the division moving forward, given that OLED is margin accretive like you just suggested and also growing quite nicely and we know that Versum is also margin accretive. And then tied to this -- just a comment you made Marcus on mid-single digit growth for SMEs you previously guided to a 19% to 22% CAGR of mid to high single-digit growth should we now think of it as a mid-single digit growth guidance looking from '20 to 2022, given the Versum will be in numbers in the 2020.

And then my second question is on Mavenclad, the slide on how revenues are recognized is very helpful, but can you provide a little bit more color on what that means for 2020 and 2021 for the product. Should we expect to achieve peak sales much sooner than the patent expiry so i.e, we have a very strong growth in 2020, 2021 and then we see sales being a little bit more flat beyond that period. Thank you very much.

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

Thanks. Wimal, first of all, addressing your PM question on the margin guidance. So we have given the guidance for the legacy Performance Materials portfolio in -- excluding Versum that we said we would not fall below the 30% going forward and what is obvious or what is, from today's point of view effect is that Versum will be margin accretive to our overall portfolio, because the stand-alone margin of Versum is slightly higher and we should also factor in the synergies of EUR75 million cost synergies only that we have already committed to.

So that means the Versum -- full consolidation of Versum since October 7, will give us some protection and some tailwind when it comes to protecting the 30% margin going forward. We should also, however, not forget and we have made this commitment in July 2018 and since then, also some things have happened, now the semiconductor market is now going to a temporary weakness. Please note that, I stress, that we're temporary because we definitely believe it will come back to good growth and development in 2020, but still and we are facing at the moment the pretty lackluster environment in the automotive space, which is pretty significantly affecting our pigments business and which was not so much on the screen, in July, 2018.

The only thing I want to express is that -- that there are some additional challenges also that we have to master and to cope with and we have put a very strong focus in the last couple of months to stress cost consciousness and cost discipline, not only in PM but through the entire group and all this taken together, I would say today we clearly commit to the 30% to the minimum level of 30% margin in Performance Materials. However, when we come to March 2020, we'll give you a more detailed outlook for 2020 then having also a better understanding how the semicon market is going to develop and where we stand in terms of our endeavor to turnaround pigments as quick as possible.

And on your second question, I'm not sure whether I recall it rightly, you also referring to the Versum CAGR, I think 2020 to '22 was drag demand?

Wimal Kapadia -- Bernstein & Co -- Analyst

No, just that in the past you've guided to Semis as a business X versus growing between '19 and 2022 between mid and high single-digit, but coming to your previous question was mid-single digit. So should we think of the guidance moving forward as mid-single digits for Semi?

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

No, Wimal. Our mid-term guidance for semiconductors stays unchanged. Mid-to-high single digit. So no reason to take this down at this point in time. So we stick to it.

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Last but not least, on Mavenclad. What was the question? So what was your question on Mavenclad, Wimal?

Wimal Kapadia -- Bernstein & Co -- Analyst

So in the slide deck you've given an example -- an illustrative example of how you recognize the revenues for the product, but I wanted to get a bit more color on what that means for 2020 and 2021. So should we expect the sales to ramp up quite fast, free, patent expiry and then see more steady sales? I'm just trying to some context for what the growth profile should look like?

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Yeah. So we are seeing, let's say, we are now still in the ramp-up phase. So that means we have year-to-date 2019 recorded $194 million, we have guided for $300 million by the end of this year and you should expect this dynamic to continue into 2020 to 2021. Yeah, we would not provide at this point in time the more detailed view going forward and really phasing and timing of the exact ramp up to the peak sales number of $1 billion to $1.4 billion. You should just note that while we have given you the sales recognition, so how we recognize sales independence on let's say the two times prescription and that we only record sales obviously in year one and two of the active treatment period for the patients. You should not forget that obviously also we will get new patients on both, yeah, which then we'll have the year one and year two while the older ones have the year three and year four. So we do not definitely -- do not expect, let's say reaching a plateau soon neither in Europe nor in the US so you can expect to see a continuous ramp up of sales. I mean, otherwise we would also have or run into trouble, to reach a EUR2 billion in 2022. So we need to see further sales ramp-up and that is exactly what we believe for 2020 and 2021.

Wimal Kapadia -- Bernstein & Co -- Analyst

Great, thank you very much.

Operator

Our next question comes from Jo Walton of Credit Suisse. Please go ahead.

Jo Walton -- Credit Suisse -- Analyst

Thank you. I'm going to chance my arm and ask you to think about some of the pushes and pulls as we move into 2020 and in particular what sort of signs we might look for a recovery in the Performance Materials business, you've talked about semiconductors returning to growth in 2020. Do you think for the full year it will have returned to growth or will this be a continuing decline probably in the first half of the year.

I'd also like to ask if you've got any initial observations now that you own Versum as to whether it's exactly as you thought when you got it and whether Versum sales have been equally impacted as the rest of the sort of semiconductor business. So when we think about Versum's contribution, it will be slightly lower than perhaps we might have expected as we move into next year and whether that's also through the profit on the sales level. Thank you.

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

Yeah, thanks for the questions. Let's start first with the recovery. So as we said, we think that the Semicon market will come back in 2020. Please do not forget that we were still in the first half year of 2019 enjoying the effects from the capacity ramp up investments in China that means in the first half of 2020, we are still running against pretty tough pretty high comparables at the same time, we would expect the Semicon market to take up speed or drive regularly and so that means it is eventually fair to assume that H1 2020 will still be negative however H2 then should be positive and the growth in the second half of the year should slightly at least overcompensate the decline in the first half of the year. That is our current view.

When we look a little bit on the sectors and for liquid crystals, we expect the decline to continue further, however, not at the same pace like at the moment because, at the moment we are still coming from as I said -- from a very high point that we have reached mid of the year 2019, but you can expect liquid crystals declining further.

On Semicon as I said, we think that at a certain point in time in 2020, we are definitely back to growth. The earlier, the better and we are working hard on turning around pigments so here we believe that 2020 we will have, at least hopefully a stable business in pigments, so that should all add up to slightly growing business -- PM business in 2020.

On Versum, we have actually no big new insights now compared to what we have seen in the period where we were let's say between signing and closing and when getting in touch with them earlier this year. So the business there from our point of view still in relatively or in good shape. We are heavily now working on the integration, the big focus at the moment is three fold. First of all, cultural integration, keeping the topline intact and of course now substantiating the synergies with very, very detailed measures monitoring them following up to fully deliver on that front.

And we see Versum sales basically similarly impacted from the overall market weakness, and what we see or observe in our own semiconductors portfolio and on the somewhat, I don't know -- the sales number that we have given for 2019, the $270 million please do not forget that we do not record Versum full quarter in our books but only 86 days. So we have closed only on October 7, so basically we are missing one week. So this might also add a little bit to normally, somewhat slightly higher number that you might have expected.

Operator

We will take our next question from Simon Baker of Redburn. Please go ahead, your line is open.

Simon Baker -- Redburn Partners -- Analyst

Thank you for taking my questions. Three quick ones, if I may, firstly for Udit. I wonder if you could give us some idea on the level of visibility and your expectation for the duration of the new modalities growth within bioprocessing. We can see certain potential indications that could take almost 50% of current global capacity. So it look -- it feels like the the potential upside is enormous, but I just wonder how much visibility you actually have on that. And then moving on to Healthcare, it's been an unusually busy week for lupus. So I wonder if you could give us an update on your development plans for either evobrutinib and BTK inhibitor. And then finally one for you, Marcus. Just on the LTIP impact on net financials, I wonder if you could just remind us exactly how this rises and the potential for smoothing or hedging that risk in future? Thanks so much.

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

Udit, do you want to start?

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Sure. Thank you, Simon for the question. And I think you're totally right. There is a terrific, terrific momentum in the novel modalities area, but I would present two facts, one in support of your argument that there is a lot of momentum in our services business between 30% to 40% of the new tests are in the novel mortalities areas.

So that tells you how much of the new testing protocols are in that particular segment. I mean, it's a small part of our overall business, but it also gives you an idea of the leading indicators. However, on the other side, I would caution against assuming that the growth in Bioprocessing or in Process Solutions is stemming from novel mortalities now or anytime in the near future the mAbs growth is by far the lion's share, over 90%, I would even say 95% of our growth comes from the continued strength in monoclonal antibody consumption and you recall the chart that I presented, almost a year and a half ago on the double-digit volume growth of mAbs.

I mean, we are seeing that play out and you see that if you just look at our portfolio and the growth -- whether the growth comes from -- it comes from our standard filtration products, downstream filtration products, it comes from cell culture media, which is used in monoclonal antibodies, this comes from single-use bioreactors which has been used in monoclonal antibodies.

So the -- so novel mortalities are growing almost double the rate of mAbs but from a very small base. So from a growth contribution perspective, I would say over the next four, five years, you should not expect that trend to change. Yet, the trend is unmistakable that you start to see a pretty nice -- pretty nice trend build up that should continue to strength in this market for a very long time to come.

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

Okay. I continue Simon with your question on the LTIP. So LTIP is just to wrap up, or to give you a short recap is our long-term incentive program for MAC higher management levels. We have across the company, so it's not only a program for the Executive Board. It's much broader, we have roughly 3,500 eligible managers within the Group receiving LTIP. LTIP is consisting of 50% of the remuneration is based on the achievement of internal KPIs, which let's say, our most important steering KPIs and the other 50% is depending on the relative share price performance MAC versus the DAX, is a reference index of German DAX.

The valuation of the LTIP is an option valuation and the time value component of that option business finally, the thing that is entering into the financial result so, and as you may know option valuation contains a lot of different parameters, which make the option valuation and of course also the share price development in the future very, very difficult to predict and fortunately that adds some kind of volatility to our financial items which we neither can hedge to be honest and which we can also not really reliably predict.

What you can assume, as I said -- what I said during the presentation that in times when we have a bigger disparity between the MAC share price and the DAX, you can assume also bigger fluctuations in the LTIP, but other than that, as I said, it's really, really basically not possible to give you some kind of rule of thumb to estimate this impact and we also cannot really hedge it.

Yeah, so we can only then explain what happened and also in Q4, we had this earlier the LTIP effect might be there. However, obviously it can also be positive beneficial for the P&L, however we are -- honestly we are more happy if negative. What you should also have in mind eventually, is that what you see in the P&L, is the delta and it is -- the effect is especially strong if the delta in one-year goals and the one direction and in prior year growth in the other direction, then you see the effect especially strong and unfortunately that was exactly the case in the third quarter and that is why the effect this time is so significant.

On your second question, so on evobrutinib, so for let's start with systemic lupus. We will have data in-house in late 2019, and this is the primary completion date. So also keep in mind we need a little bit more time than to read this out, so the read out would then be in early 2020. Then so after this readout, we will see where we stand and then also how we move forward and that is highly depending on the outcome. The SLE is basically that part of the evobrutinib, which is a high-risk high reward part and we will give you an update once we know more. On atacicept, we already said at the Capital Markets Day that we actually would not continue with atacicept on our own. That is one of the typical cases where we say with regard to pipeline prioritization. We would focus to spend somewhere else in more strategic areas of the pipeline.

However, so if we would be able to find a partner, let's say external assets in some way, we would be open for that.

Simon Baker -- Redburn Partners -- Analyst

Alright. Thanks so much.

Operator

We will take our next question from Daniel Wendorff of Commerzbank. Please go ahead, your line is open.

Daniel Wendorff -- Commerzbank -- Analyst

Good afternoon and thanks for taking my questions. A few on Life Science please, one on Applied Solutions. I wonder whether you could outline the contribution actually coming from lab water solutions in advanced analytical and maybe an add-on to this one, if you think of the type of customers for your Milli-Q IQ 7,000 platform and who -- what type of customers actually buying this mainly? That would be my first question.

And my second question is on the China growth and Process Solutions. And you mentioned, Udit that big projects also contributed to that. And I wonder what percentage or what level of growth that actually went into big projects and what would you say what's the underlying growth of the Chinese market for Process Solutions? And eventually, no, that's it actually. Yeah, thanks.

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

Thank you. Thank you Daniel. Let's start with lab water, Milli-Q -- lab water and AA, I mean, these are two very dynamic businesses. I mean, lab water as you know is benefiting from the launch of Milli-Q IQ 7,000 from last year and our consumables are growing pretty nicely.

So Q3, we saw growth in the high single digits and year-to-date, it's similar, a bit of acceleration in Q3 from, let's say 7.5% to 8.5% or so and then in advanced analytical, which is our analytical standards business, this has been doing extremely well. I mean it's really picked up momentum in this particular quarter, in the low double-digits and for the year to date it's in the high single-digit range.

Your next question was around our customers for Milli-Q IQ in particular or in our quarter in particular we usually don't give out portfolio and customer information at that level of granularity but just to give you an idea our customers for this kind of product across the board. So for instance, there will be customers in pharma and biotech, in that end market has been growing nicely in double digits. So you can assume the same for lab water. Industrial and testing, these are industrial labs, food and beverage labs and there you see a bit of a high single-digit growth you would also have customers in academia. We expect there the growth to be again in the high single-digits, although that market as a whole is rather flattish. We feel given the new launches, people are replacing their lab water tools.

The next one is Diagnostics, again you'll see a flat to at least low single-digit growth there. So you will see across the board strength and demand for lab water and here what you really need to think of is anyone who is doing an experiment in the lab wants purified water and that's the most ubiquitous reagent in a lab, so any lab wants it and if you have a better platform and this has come after about a decade or so and people are really rapidly replacing it in any laboratory across the board.

The reason I read out those numbers to you is to illustrate that it's a very broad-based growth and we don't expect a lot of volatility. Now to your China question. Look, given that we've seen such a dramatic growth, I mean we dug in quite a bit deeper indeed there are some large projects like we saw last year, but if you just compare I mean the way to look at it is to compare the year-to-date growth versus the Q3 growth.

The year-to-date growth for China is roughly 20%-ish and you see 23%-ish or so 24% or so growth for Q3 itself. So you see a bit of momentum build up and you see the biggest change in momentum in Process Solutions where the growth went up, I would say, by roughly 50% from what it used to be year-to-date before then, and that's largely due to some placement of our single-use and hardware.

And then you saw a similar trend in Q4 of last year, where we saw an uptick in Q4 with about $50 million or so increase in sales in Process Solutions. So indeed, it has to do with some one-time orders, so that's why I was cautioning in extrapolating that into Q4 and a trend that's ongoing. That said, I want to just take a step back and say, look, we are very confident about this market, the end markets looks extremely, extremely solid in China and globally, for that matter, and we definitely believe that we can continue with our strong portfolio and really have a lot of confidence in this team and we can continue our strong execution and continue to outpace this market organically and then that should flow through to the bottom line with the margin expansion that we've talked about. Thank you very much for your question, Daniel.

Daniel Wendorff -- Commerzbank -- Analyst

Yeah. Thank you.

Operator

We will take our next question from Keyur Parekh of Goldman Sachs. Please go ahead, your line is open.

Keyur Parekh -- Goldman Sachs -- Analyst

Thank you. Three questions please, one on pharma, one on capital allocation and then one for you, Udit. On healthcare, would you expect the MS Franchise to be a growth franchise in 2020, or would you expect the drags on Rebif to not be enough to offset the growth in Mavenclad that's question number one?

Second on capital allocation, Marcus can you just remind us of your priorities and can you reiterate your commitment to know big transactions over the next couple of years or do you think if an interesting asset was to come along there might be some room for you to rethink that?

And then thirdly for you Udit, obviously you had a phenomenal performance, in the last five years more or less to growth and to margins. How sustainable do you think both of those are growing faster than your peer group and maintaining the margin that you have and the delta on the margin where do you see the biggest risk growth or to margins and what do you think might drive that. Thank you.

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

Thank you. I will start with your healthcare question, for the first one, it's an easy one. The answer is yes, we are very confident that the neurology and immunology franchise in 2020 will be growing and the -- so to say the scissors [Phonetic] will go up further, that means the outperformance of Mavenclad over Rebif decline will increase going forward. We have seen a 2.3% organic growth already in the Q3, this will widen further to the positive in Q4 and even more in 2020 when Mavenclad is further gaining traction, and when the sales are going up.

Second, your question on strategic capital allocation, so as outlined now after the closing of Versum, if you look at the year end 2019 we have a net debt to EBITDA ratio of roughly three times. We have EUR12.5 billion net financial debt and we have -- clear commitments out there to the rating agencies to, we start our financials and to bring our cash flow from operations to debt, gross debt and our net debt depending on which angle you are looking on it. Back to numbers that are actually supporting our current credit ratings, which have not been touched at all after the Versum acquisition. So we expect this to last roughly round about two years and our agenda for the next two years is deleveraging and we would have a little bit money left for small M&A, but don't think that it is more than $150 million to MAC $200 million per year and from 2000 -- or after 2021, we would have regained financial flexibility, also to think about some bigger things if there are opportunities which makes strategic sense and which would also represent an attractive financial case. With that to Udit.

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Keyur, thank you for your for your question. I guess it is the number one question we've been getting for a while now. Firstly, just reviewing the sources of growth from an organic growth standpoint, I mean you would recall that we talked about a portfolio advantage. So we have certain portfolios that give us an advantage versus the broader market which grows 4% to 6%. This is not just bioprocessing, but it also includes into it's parts of our Applied Solutions and Research Solutions businesses as well.

And the second is executing at a certain high level. Let me dig just a little bit deeper to give you some color and give some color to what's happening behind the scenes and what choices we have made. If you recall back in 2015 and '16, we shared our strategy and the strategy really took our portfolio, which is 12, 13 business units and put them on a market share and market growth chart. Portfolios that were growing faster than the market, where we had good market share, we doubled down on and we invested quite a bit in these areas.

Right, this is bioprocessing, this is single use and here, you've seen the growth go up dramatically from 20% to 30%. It was 20% back in 2016 and 30% at the end of 2018 and that growth continues to this day. Then we dug deeper into the portfolios where we had good market share, but we were growing below the market, this was Life Science Chemicals and here also through license chemicals and reagents and here through deliberate effort, we saw first the turnaround of our chemicals business and this year, you've been seeing the nice performance of our workflow tools business.

In fact, yesterday I was with the team and we were -- we had a lot of visitors from different customers and we were sharing our latest Stericup -- our Stericup products, these are filtration products that are used in laboratories and here what we've done is reduced the plastics footprint by over 50% with our new launch of our platform and that product is picking up very nicely and has very good gross margins as well.

So really it's a sum of small parts, and then finally in the Applied Solutions area, we felt we were not the best owners for our cellular analysis business, that's a nice business, but we were not the best owners we had low market share, low growth and we parted ways and sold it to Luminex. So we are very actively managing our strategy and focusing on allocation of resources.

And when you think about risks to the sustainability of growth, I will turn your attention to some of the growth that I've talked about in this call and also in the past. We had identified process development and CDMO especially as a tool to plant our consumables, way back in 2016 when we build up our business unit in gene editing and novel modalities. Right, we invested in our viral vectors, contract manufacturing business we have an antibody-drug conjugate -- contract manufacturing business that we've invested and we have some really nice customers there.

We are a leading producer of toxic payloads for antibody-drug conjugates we've invested in that capacity in Verona and in Madison. We've invested in our end-to-end bioprocessing and process development business out of Merck KGaA France, we've opened sites in Shanghai and in Burlington outside of Boston. So we've identified growth vectors, it's quite early and we've invested in those through our CapEx early on. And then in e-commerce when we took over Sigma-Aldrich, we already knew this was a leading e-commerce platform first we put all our Millipore products onto the platform and then we invested further in making the content better, making the experience better and we are continuing that journey and stay tuned, I mean there is a lot more to come there.

And then finally, I would be remiss if I didn't mention our investments in Asia. So you see it's a very deliberate effort to try and identify these growth areas. I mean Life Science Tools is not a business where you have big, one-time big events that really make things go up. I mean, none of our customers are larger than 2% of our sales and none of our products is larger than 2% of our sales. So it's a team sport, where the whole team has to rise.

And finally, let me conclude by saying that the growth is very broad based, it is not just in Process Solutions and bioprocessing. In fact, the increased momentum that you see is because research has turned around and applied has picked up as well and that's showing up in our topline. And to the margins, as long as the growth is, as long as we focus on the growth in a high gross margin business and we do what we've done with our costs, with the team that we have. We are seeing a nice margin expansion, I mean, basically, we are very thoughtful about it. We discuss it at a group level, at the Board level quite a bit and we are finding whom to invest, why we're seeing a margin expansion with the stellar growth. So, unfortunately I'm not going to give you a lot of ideas on weaknesses that I see. I mean, I think it's a question of just managing deliberately, where do you see weaknesses and acting on them rather rapidly and that's what we've shown over the last five years, and as long as my team remains with me, I'm very confident that we will continue a reasonable track going forward. Thank you for your question.

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

I think we are well over the hour. We have time for one more question, please.

Operator

Our last question will come from Falko Friedrichs of Deutsche Bank. Please go ahead, your line is open.

Falko Friedrichs -- Deutsche Bank -- Analyst

Yeah, hi, it's Falko from Deutsche Bank. One quick question then from my side. In Life Science you showed us the three areas of high interest within complex biologics for that single-use viral vectors and ADC's. Could you quickly share your current market positioning in each of fields with us?

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Thank you for the question. We don't share the details on the market share, but I can simply tell you in the viral vector area we are one of the top three players. In ADCs we are one of the top two players for producing these products. So I think that is as much detail as I can give you today. Detailed market shares for these nascent markets don't necessarily exist even today, because every day you see some expansion or the other happening. You can safely conclude that there is more demand and supply for both of these type of products today in the market and also for process development, services in mAbs.

Falko Friedrichs -- Deutsche Bank -- Analyst

Okay, thank you.

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Sure.

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

Great. Thank you. Thank you so much for joining this call today for following the Merck journey. We look now much forward to meeting many of you in person in the upcoming road shows. Thank you and goodbye.

Operator

[Operator Closing Remarks]

Duration: 82 minutes

Call participants:

Constantin Fest -- Head of Investor Relations

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

Udit Batra -- Member of the Executive Board, Chief Executive Officer Life Science

Richard Vosser -- JP Morgan -- Analyst

Joseph Lockey -- Morgan Stanley -- Analyst

Florent Cespedes -- Societe Generale -- Analyst

Wimal Kapadia -- Bernstein & Co -- Analyst

Jo Walton -- Credit Suisse -- Analyst

Simon Baker -- Redburn Partners -- Analyst

Daniel Wendorff -- Commerzbank -- Analyst

Keyur Parekh -- Goldman Sachs -- Analyst

Falko Friedrichs -- Deutsche Bank -- Analyst

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