Bayer's $66B Monsanto buy spells bad news for its pharma ambitions: Analysts

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Bayer’s longtime target Monsanto has finally agreed to join hands with a $66 billion transaction. But what does the deal mean for the German drugmaker’s pharma ambitions? Nothing good, analysts say.

The tie-up, announced Wednesday, is a “lost opportunity to develop the pharma pipeline,” Bernstein’s Ronny Gal wrote in late July, noting that “Bayer does not have the funds to invest in both Ag and Pharma at the same time”--and it doesn’t have the time to wait before making more pharma investments, either.

The damage won’t happen overnight, as powerhouse meds Eylea, an eye treatment, and Xarelto, a next-gen anticoagulant, should keep sales growing  “well into 2020,” Gal predicts. But Bayer doesn’t have up-and-coming candidates to replace blockbuster-selling Xarelto once it loses patent protection in 2024, and now would be the time to start bringing in assets to do just that.

BMI Research’s Craig Smith echoed similar concerns earlier in the year, pointing out that the Leverkeusen-based company already spends less than its Big Pharma peers do on R&D. With that in mind, “this deal could significantly weaken” Bayer’s “capacity to grow within the pharmaceuticals space,” in particular hampering the in-need consumer health unit.

That business segment was supposed to get a boost from Bayer’s last big acquisition, its 2014 pickup of Merck’s ($MRK) OTC division. The deal was designed to aid Bayer’s quest to snatch the No. 1 worldwide position in consumer health. But Q2 showcased “weakness” that Gal found “concerning ... particularly given the integration is now complete.”

Bayer acknowledges that its healthcare division, which includes pharma, consumer healthcare, and animal health, will shrink in importance. The healthcare group represented almost 70% of the company's sales in 2015, while pro forma numbers for the post-merger company show it will amount to 49% going forward.



Critics of the Monsanto ($MON) needn’t worry just yet, though. It might not come to fruition. “We expect fairly major political hurdles for a deal to pass EU and U.S. regulators,” Gal’s colleague, Jonas Oxgaard, wrote in a note earlier this month, putting the merger’s chance of success at 50%.

But of course, even for those rooting against a deal close, there’s a downside to a failed tie-up. “Bayer may spend a year spinning its wheels trying to win regulatory approval, which may not be coming,” Gal wrote.

- read Bayer's deal release

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