Acquisition Worries

Bayer’s Pharma Commitment

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Bayer is and will remain a maker of drugs, according to CEO Werner Baumann.
  • Why it matters

    Why it matters

    Bayer’s $66-billion (€59 billion) purchase of the world’s largest producer of seeds begs the question whether Bayer’s pharmaceutical business will suffer as a result.

  • Facts


    • The Bayer-Monsanto deal faces scrutiny by antitrust authorities and investors.
    • Leverkusen-based Bayer seeks regulatory approval in 20-plus countries and expects the deal to be concluded by the end of 2017.
    • Many Bayer employees, especially those in its pharmaceutical division, fear the company has bitten off more than it can chew in its takeover of the U.S. agrochemicals giant.
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Finally, it was the workers’ turn.

Last Wednesday, Bayer chief executive Werner Baumann and board member Liam Condon had dozens of interviews about the purchase of American seeds and pesticides maker Monsanto. The executives from German drugs and pesticides maker Bayer spoke via webcast from a conference room in New York to their workers in Leverkusen, its headquarters, and Monheim, the main seat of its agrochemicals business.

The Bayer workers asked a lot of questions and touched on some tricky points. What does this mean for their jobs? How will management deal with criticism by environmental associations? And how does management see the monopoly problem?

“We won’t take any money away from pharma that will be necessary to strengthen the business.”

Werner Baumann, CEO, Bayer

One employee then asked a very direct question: Is there enough money left for investments in the pharmaceutical business?

At first, Mr. Baumann didn’t answer in his usual serious manner. He finally said, “There is as much money left for investments in the pharmaceuticals business as $100 notes this room can hold.”

Then he said: “We won’t take any money away from pharma that will be necessary to strengthen the business,” according to the webcast recording notes, of which Handelsblatt has obtained a copy.

Bayer employees are nervous. Many fear the company, the inventor of Aspirin in the 1890s, has taken on too much with the $66-billion takeover of the U.S. agrochemicals giant Monsanto. Most of all, Bayer workers from its non-agricultural divisions – first and foremost the pharmaceutical – ask whether Bayer’s coffers hold enough to compete in the tough competition from drug producers worldwide.

The question has also occurred to many investors who supported Bayer’s mega-investment in the agrochemicals business despite the firm’s traditional focus on pharmaceuticals. Around 100 investors attended Tuesday’s “Meet Management Day” in Cologne hosted by Bayer’s management board. Mr. Baumann made clear all Bayer businesses will have access to the resources they need to reach their strategic goals.

It wasn’t just a commitment to pharmaceuticals that Mr. Baumann emphasized to financial markets. He also promised to improve profit margins significantly in all divisions by 2018.

“We are optimistic about the medium-term development and have set ambitious goals for ourselves,” Mr. Baumann said.


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He sought to avoid the impression that the Monsanto agro-takeover was of paramount importance at Bayer and that the pressure on the company’s other two divisions, pharmaceuticals and over-the-counter medicine, was being relaxed.

Bayer management is confident about the pharmaceutical business. It achieved sales last year of €13.7 billion ($15.3 billion) and an operative profit margin before interest, tax, depreciation and amortization of 30 percent.

Bayer’s top managers aim for annual growth averaging 6 percent in sales by 2018, a revenue figure that’s above the projections for the overall market. The profit margin is supposed to increase to the range of 32 to 34 percent. The agrochemicals division, Crop Science, fortified by Monsanto, is supposed to bring in considerably more than a 30 percent margin.

A closer look into Bayer’s healthcare businesses shows promised growth would come from current bestsellers rather than new drugs. On Tuesday, the company upgraded its forecast for sales of its five largest drugs. The estimated amount had been €7.5 billion but now is forecast to be €10 billion.

Bayer continues to remain dependent mostly on the success of its bestseller Xarelto, marketed in a number of countries as Rivaroxaban. Sales of the anticoagulant are growing rapidly; in 2015, sales reached around €2.3 billion. Bayer says sales of €5 billion are possible, a growth fueled by uses in new areas of therapy. The second driver is Eylea, an eye medicine. The forecast for its sales has increased from €1.5 billion to €2.5 billion.

Bayer’s shares jumped as much as 2.3 percent after the new drugs targets and closed up 0.6 percent at €92.10 on Tuesday.

But not all analysts are cheering. Sachin Jain of U.S.-based investment bank Merrill Lynch considers it unlikely that any drug in Bayer’s pipeline can compensate for Xarelto’s patent running out in 2024.

Ulrich Huwald of Warburg Research said, “Bayer must keep its promise, particularly concerning the drug pipeline.”


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Bayer’s management also presented the debut of drugs which the firm is pinning its hopes on. They are six potential medications combating kidney failure, chronic congestive heart failure and cancer. Bayer places their sales potential at over €6 billion. They are expected to come on the market between 2018 and 2021 – but first they have to get through clinical trials and the approval process.

Mr. Baumann indicated the company has funds set aside for pharmaceutical acquisitions and drug licensing. Many investors doubt the people in Leverkusen can keep pace with the competition for promising biotech products, in view of the high amount of debt incurred purchasing Monsanto.

Amounts exceeding $10 billion are being paid for U.S. biotech firms in particular, even when they have only one product on the market. Bayer is coming up against pure-breed pharmaceutical companies with well-filled war chests.

Bayer has set ambitious goals with Monsanto. The deal is supposed to deliver $1.5 billion in synergies. The Consumer Health Division is an example that shows such amounts aren’t easy to achieve.

In 2014, Bayer bought the business with prescription-free drugs belonging to the U.S. company, Merck & Co, for $14 billion. On Tuesday, Mr. Baumann had to admit to investors that the Americans’ product pipeline is weaker than Bayer was able to recognize during the bidding process. The synergy goals are now being shoved back.

Instead, Bayer is having to invest heavily in the acquired brands. Thus the profit margin in this segment will only go up slightly to 25 percent by 2018.

Mr. Baumann must continue to sell the course he is taking – even to his workforce. Sources within the company say that the uncertainty caused by the buying of Monsanto remains high despite all the information events.

One example: when budgets, such as in the pharmaceutical division, were to be readjusted, the workers would already be sure it was because of the Monsanto takeover. Bayer denies this connection. Budgets, they say, are regularly adjusted when projects change in research and development, for example.

Mr. Baumann was asked in the webcast with the employees whether the same fate is threatening Bayer that Hoechst once had. Hoechst was once a life-science company like Bayer is today. In 1999, the company split up into a producer of agrochemicals and a producer of pharmaceuticals.

Mr. Baumann ruled out this story repeating itself in Leverkusen. “A clear no,” he told his employees. The management board, he said, wants to take Bayer, as a life-science company, to the next level.


Bert-Friedrich Fröndhoff leads a team of reporters that covers the chemicals, healthcare and services industries at Handelsblatt. To reach the author:

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