Bayer expire pharma box office hits – research before conversion

Around 8,000 lawsuits on glyphosate, 11 billion euros market value destroyed, high legal and reputational risks: The anger over the controversial weed killer of the new US subsidiary Monsanto (NYSE: MON) dominated the headlines about Bayer (DE: BAYGN).

But it overshadows another very fundamental problem that the group has to deal with: “The pharmaceuticals sector only has a relatively weak phase III pipeline in terms of industry standards,” says Berenberg analyst Alistair Campbell. According to many experts, the supply of new medicines at Bayer is too weak to be able to absorb lost sales after the patent expiration of the top medicines. For a long time, the pharma business has been the driving force, with the aspirin manufacturer having its roots there. However, it must be further strengthened if the Leverkusen-based group does not want to fall behind in comparison to its international competitors.

In the global pharmaceutical market, the group is only ranked 15th, according to data from the analysis company Evaluate Pharma and makes with prescription drugs less than half of the sales of the top three companies Novartis (SIX: NOVN), Pfizer (NYSE: PFE) and Roche (SIX : RO). Many investors worried that the pharmaceuticals business might be neglected in the future due to the Monsanto acquisition. Baumann, however, had asserted at the Annual General Meeting in May that the business was well positioned with currently 50 projects in clinical development. Also Pharma Board Dieter Weinand had rejected at the end of last year in Reuters interview that the group has a pipeline problem. Bayer is prepared for the patent expiration of its most important drug, the anticoagulant Xarelto with a turnover of only 3.3 billion euros in 2017.

Together, Bayer is confident that it will achieve a peak annual sales volume of at least six billion euros for the most promising drug candidates in the development pipeline. Analysts had expressed doubts about this estimate because it required a success of all projects. “I do not currently see any new blockbusters,” says a fund manager. “In the pharmaceutical sector, a lot has to be done, they must continue to invest.” Bayer is in the midst of a strategic review of its drug discovery and development under the code name “Super Bowl.” First results are expected in November, said an insider. Possible are job cuts or the outsourcing of drug tests. There will be “strong changes”.

Recently, a management team around the head of pharmaceutical research and development, Jörg Möller, was appointed. This will now determine new organizational forms and processes, said another person familiar with the matter.

Bayer did not want to comment on that.


Sales of box office hitters – Xarelto and the eye medicine Eylea – are still growing strongly, but growth has slowed significantly in recent years. These are the only Bayer drugs with a turnover of over one billion euros. If the patents of the two medicines expire in the mid-2020s, there will be a threat of significant sales losses. “Xarelto and Eylea will continue to grow in the next three to five years, giving Bayer a one-to-three-year window to in-licensing something, or it has to show that something is coming out of the previous pipeline,” said fund manager Markus Manns of Union Investment. “Today, the pipeline is weak to moderate.” The pressure to strengthen them will increase in the next few years, but Bayer still has some breathing space.

While Baumann has announced additions to the pipeline in addition to partnerships and acquisitions, insiders think the latter because of the limited funds from Bayer after the Monsanto acquisition less likely. They assume that the Group will focus on the in-licensing of active ingredients. Most recently, several development projects in the Bayer pharmaceuticals business failed, including a study using the compound Anetumab Ravtansine for use in an asbestos-related cancer.


According to investors, the end of 2017 announced alliance (DE: ALVG) with the US biotech company Loxo Oncology on the cancer drug larotrectinib, the analysts annual sales of up to a billion dollars trust, a step in the right direction. Loxo will be soliciting payments of up to $ 1.6 billion from Bayer as part of the collaboration. “Over the next few years, a budget of one to five billion euros will remain for inlicensing, for the amount you can get one or two good drugs,” estimates Mann. Overall, however, new drugs are very expensive and Bayer could fall behind if the company bid against major rivals such as Pfizer. The sale of parts of the company could create some air: Bayer recently sold its prescription skin care business to the Danish Leo Pharma. Investment bankers expect that someday the animal medicine business or the radiology business will also be put on display.


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