Rebounding Fortunes

Years After Lipobay Troubles, Bayer Set to Lead DAX Index

bayer lipobay dpa
The cholesterol lowering Lipobay was removed from the U.S. market after deaths linked to the drug.
  • Why it matters

    Why it matters

    Bayer CEO Marijn Dekkers is credited with successfully marketing Bayer’s newest, most innovative drugs. Bayer stock now sells for almost €100 a share, up from under €10 a decade ago.

  • Facts

    Facts

    • Patient deaths linked to Bayer’s Lipobay prompted a raft of U.S. civil suits against the company.
    • Xarelto, a blood thinner, and Adempas, a blood pressure drug, helped Bayer’s turnaround.
    • Bayer’s drug business increased by 12 percent in the first half of 2014, three times the industry average.
  • Audio

    Audio

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Just over 10 years ago, Bayer was stumbling through some of the darkest times in the company’s history. The chemical business was struggling in 2003 amid a scandal over its cholesterol-lowering drug Lipobay, and the German pharmaceutical giant was sinking.

The greatest danger lay in U.S. courts, where Bayer faced huge damage claims in more than 100 deaths linked to Lipobay, which was recalled in 2001. Investors feared mounting liability claims could force the company out of business, and its stock plummeted to less than €10 ($13).

At the time, you could have bought the whole company for a modest €7.5 billion, or $9.94 billion. Analysts saw Bayer drifting like its one-time competitor, Hoechst, which had been dissolved three years earlier.

Eleven years later, the world looks completely different in Leverkusen, the company’s headquarters in North Rhine-Westphalia.

Bayer is back in the drug business and outpacing competitors. The company’s agrochemical business is also running smoothly.

Bayer stock, now selling for nearly €100 a share, have doubled in the last two years alone. With market capitalization of just under €82 billion, the company is vying with Siemens for first place among the most valuable German companies on the DAX blue chip stock index.

The foundation for Bayer’s comeback was laid during the economic meltdown more than a decade ago. Werner Wenning, then chief executive and chairman of the board, first split the business into three groups under a management-holding umbrella.

This was followed by the acquisition of Aventis Crop Science and Roche’s over-the-counter drug business. Then came the move to spin off part of Bayer’s chemicals business to form Lanxess AG. Three years later, Bayer completed a takeover of Schering AG.

Just as important was the course Mr. Wenning set in leadership and research strategy.

Among other moves, he brought top pharmaceutical managers on the board, including Wolfgang Plischke, who was head of the pharmaceutical division, and Kemal Malik from product development.

Galenics
A Bayer researcher examines crystalline structures of new active substances. Source: Bayer

 

When Bayer was forced to slash drug research in 2003, the company proved it had the right nose for business and continued with projects like Rivaroxaban, a blood thinner marketed as Xarelto, and Riociguat, a drug used to treat high blood pressure in the lungs and sold under the trade name Adempas.

“Bayer management was ready to take a calculated risk in this difficult situation,” said industry expert Mark Seidler of Strategic Decisions Group.

Yesterday’s gambles are worth their weight in gold today.

Xarelto is now the company’s best-selling drug. Four new products have also been approved and are boosting drug sales. Currency-adjusted, business increased about 12 percent in the first half of 2014, triple the industry average. Bayer predicts sales of the new products could reach € 7.5 billion or $9.94 billion. And secretly, managers and analysts alike expect much more from the drugs.

So what is the new chief executive’s role in this success?

When Marijn Dekkers took over in 2010, the course for a comeback had long been set. His contribution was to push ahead with divestments and major acquisitions. Only a few months ago, he sent a clear signal with the purchase of Merck’s over-the-counter division. As he concentrated on moving the business forward, he made few changes in company strategy.

“It is certainly to be credited to Mr. Dekkers that innovations were turned into commercial successes,” said Daniel Wendorff, pharmaceutical expert at Commerzbank. That is not only true for pharmaceutical but for the agrochemical subsidiary, Bayer Crop Science.

Bayer always had good products, according to Mr. Dekkers, “but not always good marketing.”

Even without spectacular measures, Mr. Dekkers, a Dutch native, has presided over a transformation at Bayer.

Although the weak and sluggish plastics business, Bayer Material Science, still accounts for one quarter of sales, it is not so important when considering earning power and company value. That is what matters for the company’s market price and market capitalization.

Bayer’s profits are rated more reliable, the more it gets out of the healthcare business.

With this in mind, J.P. Morgan analysts have raised stock price estimates for Bayer eight times since the start of 2012, most recently to €120 a share. On Wednesday, the stocks were quoted at €98.67 – a clear signal that Bayer’s rise in the DAX has not ended.

Siegfried Hofmann is a Handelsblatt editor who covers the pharmaceutical and chemical industry. He can be reached at s.hofmann@handelsblatt.com

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