Bayer Stresses Pharma Post Mega-Merger with Monsanto

By Patricia Van Arnum - DCAT Editorial Director

September 21, 2016

Following its proposed $66-billion acquisition of the agrochemical and seeds company, Monsanto, Bayer has reaffirmed its commitment to its pharmaceutical business with a plan for ambitious growth in that sector. So what are the company's goals for its pharmaceutical business?

Bayer took on a new corporate structure in January 2016 with three divisions: pharmaceuticals, consumer health, and crop science, and a separate business unit, animal health.After its proposed mega-merger with Monsanto to boost its cropscience business, Bayer management held a meeting this week to set forth its plans for its pharmaceutical business. DCAT Value Chain Insights examines the latest.

Werner Baumann Chairman, Board of Management, Bayer AG
 
Dieter Weinand Member, Board of Management, Bayer AG, and Head, Pharmaceuticals Division

The new Bayer
Bayer's focus on life sciences is being led by Werner Baumann, who became chairman of the board of management of Bayer AG on May 1, 2016, succeeding Marijn Dekkers. With the company's new corporate structure, effective in January 2016, the company also named new heads of its divisions. Beginning in January 2016, Dieter Weinand was named a member of the board of management of Bayer AG and head of the Pharmaceuticals Division, headquartered in Berlin, Germany. From August 1, 2014, until his appointment to the board of management of Bayer AG, Weinand was a member of the Bayer HealthCare Executive Committee and head of the Pharmaceuticals Division. On the board of management, he is also responsible for the region North America. Erica Mann was named a member of the board of management of Bayer AG and head of the Consumer Health Division, headquartered in Basel, Switzerland. Liam Condon was named a member of the board of management of Bayer AG and head of the Crop Science Division, headquartered in Monheim, Germany. He is also responsible for the Animal Health Business Unit.

Bayer's former MaterialScience subgroup, renamed Covestro, became legally and economically independent on September 1, 2015, and Covestro AG was floated on the stock market in October 2015. Bayer currently still owns around 69% of Covestro. 

In its first large-scale acquisition since becoming a pure-play life-sciences company, Bayer announced earlier this month that it had come to terms with Monsanto under a $66-billion acquisition bid ending a four-month effort by Bayer to acquire Monsanto. The deal has been approved by the boards of both companies.The acquisition is subject to customary closing conditions, including Monsanto shareholder approval of the merger agreement, and receipt of required regulatory approvals. Closing is expected by the end of 2017. Pro forma sales of the combined agricultural business is EUR 23 billion ($26 billion) in calendar year 2015, which would make it the second largest segment in Bayer behind pharmaceuticals. In 2015, Bayer posted overall life-sciences pro forma revenues of EUR 34.34 billion ($38.64 billion). Pharmaceuticals accounted for EUR 15.31 billion ($17.23 billion), crop science EUR 10.37 billion ($11.67 billion), consumer health EUR 6.08 billion ($6.84 billion), and animal health EUR 1.49 billion ($1.68 billion).

With its large investment in its cropscience business through the proposed $66-billion acquisition of Monsanto, Bayer's management emphasized pharmaceuticals as part of its strategy in life-sciences. "We anticipate especially significant sales and margin growth at Pharmaceuticals," said Baumann in a September 20, 2016 company statement. "This growth is expected to be driven particularly by the positive development of our recently launched products, for which we now see combined peak sales potential of more than EUR 10 billion [$11 billion],” said Baumann, in  the statement.."At Crop Science, Bayer expects a substantial increase in the margin after closing of the planned acquisition of Monsanto. The prospects for Consumer Health and Animal Health are positive as well."

In the prescription medicines business (pharmaceuticals), Bayer said it seeks to achieve average annual sales growth of approximately 6% by the end of 2018 after adjusting for currency and portfolio effects. Sales of this division totaled EUR 15.31 billion ($17.23 billion) in 2015, including the radiology business. Baumann raised the estimate of the combined peak annual sales potential of the company's five recently launched pharmaceutical products from previous estimates of at least EUR 7.5 billion ($8.4 billion) to now more than EUR 10 billion ($11.1 billion). Bayer now expects peak sales potential of more than EUR 5 billion ($5.6 billion) (previously approximately EUR 3.5 billion [$3.9 billion]) for the anticoagulant Xarelto (rivaroxaban) and peaks sales of the eye medicine Eylea (aflibercept) at more than EUR 2.5 billion ($2.8 billion) (previously at least EUR 1.5 billion [$1.7 billion]). The company anticipates peak sales potential of more than EUR 1 billion ($1.1 billion) for the cancer drug Xofigo (radium-223 dichloride) and more than EUR $500 million ($557.1 million) for the pulmonary hypertension treatment Adempas (riociguat) The company targets peak sales potential of the cancer drug Stivarga (regorafenib) of at least EUR 1 billion ($1.1 billion).

“We are also very confident about our Pharmaceuticals business beyond these products,” stressed Baumann in his statement. He explained that Bayer has promising product candidates in its Pharmac(euticals pipeline, six of which have combined peak sales potential of at least EUR 6 billion ($6.7 billion). This includes; vericiguat to treat worsening chronic heart failure (approximately EUR 500 million [$557 million]); finerenone for diabetic kidney disease (at least EUR 1 billion [$1.1 billion]); vilaprisan against uterine fibroids (at least EUR 1 billion [$1.1 billion]); BAY-1841788 (ODM-201) to combat prostate cancer (at least EUR 1 billion [$1.1 billion]); anetumab ravtansine to treat various types of cancer (at least EUR 2 billion [$2.2 billion]); and copanlisib to combat lymphoma (at least EUR 500 million [$557 million]). Overall, Bayer currently has 19 projects in clinical Phase III,16 drug candidates in Phase II, and 15 in Phase I. “We are planning at least 20 product launches at Pharmaceuticals by the end of 2023,” said Baumann, which includes both new active substances and new indications for already approved substances.

Bayer's Pharmaceuticals Division focuses on prescription products, mainly consisting of women’s healthcare and cardiovascular health products; and specialty medicines in oncology, hematology, and ophthalmology. The division also comprises the radiology business, which markets diagnostic imaging equipment and contrast agents. In 2015, Bayer sold its diabetes care business to Panasonic Healthcare Holdings. 

The Consumer Health Division markets mainly nonprescription products in the dermatology, dietary supplement, analgesic, gastrointestinal, cold, allergy, sinus and flue, foot care, sun protection, and cardiovascular risk prevention categories. Bayer boosted its consumer healthcare business with two key acquisitions in 2014: the $14.2 billion acquisition of the consumer care business of Merck & Co. and and the China-based consumer healthcare company Dihon Pharmaceutical.

The Crop Science Division has businesses in seeds, crop protection, and non-agricultural pest control and has two operating units: Crop Protection/Seeds and Environmental Science. The Animal Health Business Unit offers products and services for the prevention and treatment of diseases in companion and farm animals. Bayer made an important strategic move with its proposed $66-billion acquisition of the agrochemical and seed company, Monsanto.

Inside look at Bayer's pharmaceutical business
In 2015, Bayer's recently launched pharmaceutical products were the company's strongest growth drivers. Reported pharmaceutical sales increased 9.9% in 2015 to EUR 13.7 billion ($15.3 billion). Recently launched products--the anticoagulant Xarelto (rivaroxaban), the eye care medicine Eylea (aflibercept), the cancer drugs Stivarga (regorafenib) and Xofligo (radium 223 dichloride), and Adempas (riociguat), a drug to treat pulmonary hypertension, achieved combined growth of 42% in 2015 on a currency adjusted basis to EUR 4.2 billion ($4.7 billion). Table I outlines Bayer's top-selling pharmaceutical products in 2015. 

Table I: Bayer Top-Selling Pharmaceutical Products
Product: Product (Proprietary Name) Percentage Change, 2015 over 2014  2015 Sales    
Xarelto +34.1% EUR 2.252 Bn (2.511 Bn)
Eylea+ +61.8% EUR 1.228 Bn ($1.369 Bn)
Kogenate +4.1% EUR 1.155 Bn ($1.288 Bn)
Mirena product family +18.2% EUR 968 M ($1,079 Bn)
Nexavar +15.4% EUR 892 M ($ 995 M)
Betaferon/Betaseron +0.1% EUR 824 M  ($919 M)
Yaz/Yasmin/Yasminelle -8.1% EUR 706 M  ($787 M)
Adalat +7.7% EUR 633 M ($706 M)
Aspirin Cardio +7.8% EUR 524 M ($584 M)
Glucobay +18.1% EUR 523 M ($583 M)
Avalox/Avelox -0.5% EUR 379 M  ($423 M)
Stivarga +39.7%

EUR 313 M ($349 M)

Xofigo +63.7% EUR 257 M  ($287 M)
Levitra -7.8%    EUR 226 M  ($252 M)  
Cipro/Ciprobay -4.7% EUR 182 M ($203 M)
Bn is billions; M is millions. Currency exchange as of Sept. 20, 2016 (1 EUR = $1.115) Source: Bayer AG/Bayer Healthcare

In addition to striking a deal with Merck & Co. for its consumer care business of Merck in 2014, Bayer also formed a collaboration with Merck in prescription drugs in the field of soluble guanylate cyclase (sGC) modulators. Bayer plans to strengthen its development options in its cardiology business with the global co-development and co-commercialization agreement, which has already been approved by the relevant antitrust authorities. Merck & Co., Inc. will make payments of up to $ 2.1 billion to Bayer. These include an up-front payment of $1 billion as well as revenue-based milestone payments of up to $1.1 billion for future combined sales of certain jointly developed substances, including the pulmonary hypertension treatment Adempas.

Bayer: recent manufacturing investment
On the manufacturing front in its pharmaceutical business, key production sites for Bayer are in: Bergkamen, Germany (active ingredient production); Berkeley, California (active ingredient production based on biotechnology); Berlin, Germany (formulation and packaging); Leverusen, Germany (formulation and packaging); Turku, Finland (formulation and packaging of intrauterine systems); Weimar, Germany (formulation and packaging); and Wuppertal, Germany (active ingredient production). 

In 2014, Bayer announced an investment of more than EUR 500 million ($557 million) at its sites in Wuppertal and Leverkusen, Germany, Bayer will establish additional capacities for the manufacturing of the recombinant factor VIII (rFVIII) hemophilia products that are currently in development. The investigational therapy options for hemophilia patients, a plasma protein-free rFVIII (BAY 81-8973) and a long-acting rFVIII (BAY 94-9027), are both currently in clinical trials.. As part of this investment Bayer will create about 500 new jobs at its sites in Leverkusen and Wuppertal by the year 2020.

The investigational plasma protein-free product BAY 81-8973 is an upgrade of the currently marketed Kogenate FS/Kogenate Bayer product and will be produced without the addition of any components of animal or human origin. Bayer’s approved hemophilia A therapy product Kogenate FS/Kogenate is manufactured exclusively in Berkeley, California. Establishing an additional supply source in Germany will help the company to prepare for production of the anticipated new therapy options and address the growing demand in this therapeutic area, according to the company.

Also, in 2014, Bayer HealthCare announced it will invest around EUR 100 million ($111 million) to increase the production capacity of its plant in Beijing, China, in preparation for further demand of its products in the country. The planned capacity expansion is designed to ensure a reliable supply of products to meet the domestic demand for Bayer  products, including the company’s cardiovascular and anti-diabetes products. The expansion will include logistics areas for fully automated material handling, analytical laboratories, and high-speed packaging lines.