Bayer suffering headaches despite Monsanto purchase
Mass layoffs at the inventor of aspirin show that Bayer, the German maker of drugs and seeds, has more headaches than its Monsanto hangover.
The conglomerate’s health-care division, which provides more than half its revenue, needs urgent attention. Bayer will begin losing patent protection for two blockbuster drugs in the next five years and has little under development to compensate. Growth in the consumer-health unit, beefed up four years ago with brands like Claritin, has stalled.
Chief Executive Officer Werner Baumann acknowledged the company’s challenges Thursday, airing plans to cut 12,000 jobs and dispose of the animal health, foot-care and sunscreen divisions. The moves have nothing do with Monsanto, the agricultural business the German company acquired this year, he said.
But the acquisition, which also brought costs for defending the Roundup weedkiller against lawsuits linked to cancer risk, cut resources that Bayer could have invested in health care.
“They used up all their dry powder and then some on Monsanto,” said Damien Conover, an analyst at Morningstar in Chicago. “
On their own, Bayer’s health care operations would rank as Europe’s fifth-biggest drugmaker by sales. As things stand, however, growth will stagnate in just a few years as blood thinner Xarelto faces cheaper generics and eye treatment Eylea squares off against newer drugs.
Meanwhile, despite some successes in prostate cancer and lymphoma, Bayer’s list of experimental drugs doesn’t impress Wall Street. In 2016, the company targeted 6 billion euros ($6.8 billion) in peak revenue for its roster; that was before anetumab ravtansine, which accounted for a third of the total, failed in a cancer trial last year. Bayer’s pipeline is worth about 3 billion euros in 2025 sales, Sanford C. Bernstein & Co. analyst Wimal Kapadia estimated.
In the ultracompetitive pharma world, Bayer is short on focus. Rivals such as Novartis and Roche Holding are fixed on health, and their potential future medicines look stronger, according to David Evans, an analyst at Kepler Cheuvreux.
Merck KGaA, a smaller conglomerate that went a decade without developing a new drug before last year, has a more exciting pipeline, Evans said. Only GlaxoSmithKline’s late-stage pipeline is thinner than Bayer’s among the six biggest drugmakers in Europe, Bloomberg Intelligence analyst Cinney Zhang said.
The company is aware of the challenge, according to Oliver Renner, a spokesman. Its review of the pharma unit’s research and development operations is dubbed “Super Bowl,” a reference to last winter’s National Football League championship game in which the Philadelphia Eagles upset the defending champion New England Patriots.
The game shows that “through better collaboration and techniques, the underdog beat the favorite,” Renner said.