Emerging drugs

Bayer goes on a biotech binge

Gene sequence
In pursuit of the perfect cocktail. Source: Bayer

November was a big month for Bayer’s drugs business. It applied for approval for Xarelto, a new blood thinner and potential cash cow that stands to bring in billions of euros of business. Dieter Weinand, the energetic president of Bayer Pharmaceuticals, also signed off on two key biotech deals, investing €1.4 billion ($1.67 billion) in a joint venture with US biotech company Loxo Oncology, and another $1 billion to develop drugs with PeptiDream, a Japanese biopharmaceutical firm.

Bayer knows what’s needed to adapt in the rapidly-changing pharmaceuticals sector – to churn out blockbuster drugs and keep earnings flowing, while making shrewd investments in cutting-edge biotechnologies. But is the company’s drug pipeline strong enough to deliver the goods? Analysts have their doubts. Over the next decade, patents will run out on Xarelto and mass-market eye medicine Eylea, threatening a collapse in revenues. And with Bayer paying $60 billion to merge with Monsanto, the controversial agrochemical giant, resources could be tight for years to come.

Mr. Weinand hopes his deals will silence the critics who say a post-merger Bayer will neglect its pharmaceutical division. He says the German company plans to expand its program of acquisitions and strategic alliances. But skeptics point out that the company has a mere 50 internal projects in the pipeline, compared with 140 for rival Roche, which is twice Bayer’s size.

“If we don’t engage in biotech now, later it will be too late. There is huge potential here.”

Dieter Weinand, president of Bayer Pharmaceuticals

Although Bayer has been splurging about €1 billion a year on R&D, the results have been decidedly mixed. Granted, the company recently scored approvals for the cancer medicine Aliquopa, and for a new agent to combat hemophilia. But the product line-up took a direct hit when Anetumab, a promising cancer treatment, performed badly in a key study. Tim Race, a pharmaceuticals analyst at Deutsche Bank, says the setback raises questions about the viability of Bayer’s pharma division.

Bayer’s woes coincide with a broader shift in the pharmaceuticals industry. The traditional mode of drug development – elaborate clinical trials, approval, then marketing – remains crucial. But speculative research into new biotechnologies has come to the fore, threatening to upturn Bayer’s workflow.

Big Pharma’s appetite for new technologies comes in waves. The 1990s saw a massive increase in genome-based research and new forms of computerized screening. The latest phase began in 2014, with a sudden burst of interest in immune therapies against cancer.

All of Bayer’s major competitors are hunting for technological breakthroughs. Companies like Novartis, Celgene and Astra-Zeneca are investing heavily in gene and cell therapies. Gilead, a US biotech and pharma company, lately paid $11 billion for Kite Pharma, a new biotech exploring cell therapies for leukemia and other cancers. Alphabet (Google) is a major player in biotech, forging alliances with a number of pharmaceutical companies.

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So-called “platform” deals have mushroomed in recent years. In these tie-ups, large pharmaceutical firms secure emerging technologies in return for access to their deep stores of data. According to the US industry group BIO, there were around a dozen deals worth over a billion dollars each in 2016 and 2017. These include a joint venture between Eli Lilly and Curevac, a German-based biotech, to research immune therapies for cancer.

Bayer’s strategically-important deal with America’s Loxo falls into this category, giving the Germans swift access to innovative agents. “It was a rare opportunity to find a substance at relatively advanced stage of development,” says Mr. Weinand. Loxo hopes to win US approval for an up-and-coming cancer treatment, Larotrectinib, before the end of this year. The drug is unusual in that it offers precise treatment of tumors caused by genetic mutations.

Other Bayer collaborations also draw on new biotechnologies. They include cell treatments designed to repair damaged heart tissue, and the joint venture Casebia, established with US biotech Crispr Therapeutics, which uses “genetic editing” technology. Bayer believes this research is speculative, but absolutely necessary: “If we don’t engage now, later it will be too late. There is huge potential here,” says Mr. Weinand.

There are many promising new technologies, and growing demand for significant, proven innovation to justify the typically stiff retail prices on hot treatments. Sweet returns beckon to early investors who bet on the right horse.

Siegfried Hofmann is Handelsblatt’s chemical and pharmaceutical industries correspondent. Brían Hanrahan and Jeremy Gray adapted this story into English for Handelsblatt Global. To contact the author: hofmann@handelsblatt.com

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