Less than a month after Bayer missed analyst estimates for its consumer health unit by 7%, the German drug giant has decided to shake things up. The current head of the division, Erica Mann, will step aside at the end of March—a full nine months before her contract was scheduled to run out—and a Nestle executive will step in to replace her.
Heiko Schipper, Nestle’s deputy executive vice president, will take over a business that's suffered as Bayer concentrated on its planned $66 billion purchase of Monsanto, which executives had hoped to close by the end of this year. Analysts had worried that the agriculture megamerger would steal the company’s focus away from its pharma and consumer units, and some saw its disappointing third quarter as evidence of that scenario. Bayer’s net sales of €8 billion ($9.5 billion) missed estimates by 6%.
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Bayer is facing significant challenges in its consumer business, particularly in the U.S. Three of its biggest consumer brands—Coppertone, Aleve and One A Day—all suffered weak sales in the third quarter, Mann explained during a conference call with analysts after the earnings release.
Mann outlined a series of drags on Bayer’s consumer business in the U.S., including a rate of store closures outpacing the numbers seen during the financial crisis of the late 2000s, as well as what she called “the Amazon effect,” the mass migration of consumers to e-commerce. What’s more, Aleve lost ground to rival products and Coppertone was hit by pricing pressure and inventory troubles.
“It is a mainly U.S. issue we have to fix,” conceded Bayer CEO Werner Baumann during the call.
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Baumann and Mann were pressured to explain how the company intends to turn around its consumer business in 2018. Mann cited a planned relaunch of the Coppertone brand and increased marketing support for other key brands it acquired from Merck & Co. in a $14 billion deal in 2014, including Claritin and Dr. Scholl’s.
The company is also trying to get on the e-commerce bandwagon, Mann said, by striking partnerships with key players around the world. In October, for example, Bayer teamed up with Alibaba Health to make its products more widely available in China.
Now the pressure to turn around Bayer’s consumer business will fall on the shoulders of Schipper, a Dutchman and 20-year Nestle veteran who headed up sales and marketing in several different countries before moving to Switzerland in 2013 to helm the company’s infant nutrition unit.
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Bayer’s turnaround effort comes amid a rising tide of consolidation in the consumer health field. Last month, Pfizer said it’s evaluating a range of options for its consumer health business, including a possible spinoff or sale. Analysts have long expected GlaxoSmithKline to exit its consumer joint venture with Novartis, though that has yet to happen. And Merck KGaA is shopping its own, smaller consumer unit.
During the third-quarter call, Baumann was asked if Bayer considers consumer health to be a distraction, and if so, would it participate in the industry’s ongoing consolidation. Baumann said he’s following all the rumored deals but that the company “will stay out of all of those.”
Bayer, of course, already made its mark in consumer health M&A with that 2014 deal for Merck’s over-the-counter unit. At the time, Bayer had big plans to be the No. 1 player in consumer health. But if the third-quarter results and subsequent shake-up are any indication, Schipper will have his work cut out for him to get Bayer back into an industry-leading position.