Bayer CEO on animal health: Either bulk up or get out

Werner Baumann

Bayer’s outgoing CEO, Marijn Dekkers, was a major proponent of the German pharma giant’s animal health division, who repeatedly tried--and failed--to build it up by buying rivals. But Dekkers is getting set to hand the reins over to Werner Baumann, Bayer’s head of strategy, on May 1, and it’s not so clear how dedicated the new CEO will be to animal health.

During a media briefing on April 11, Baumann acknowledged Bayer’s inability to make strategic acquisitions in animal health, according to Reuters. He went on to say he was questioning whether Bayer’s animal health assets are “well placed with us as best owner or can these businesses perhaps progress better in a different environment, with different access to resources?"

Bayer has been a perpetual also-ran in animal health dealmaking, losing out to Eli Lilly ($LLY) in a bid to buy Novartis ($NVS) Animal Health and earlier missing an opportunity to pick up veterinary products from Schering-Plough. As Bayer was preparing to spin off its plastics unit, Covestro--which it eventually did for $1.7 billion in October 2015--the Wall Street rumor mill went wild with speculation it might buy Zoetis ($ZTS). But that deal never materialized.

Baumann wouldn’t say how long Bayer would continue to hunt for animal health assets, according to Reuters, noting that finding potential targets has been a challenge because animal health trades have taken place as part of larger deals. Take, for example, Sanofi ($SNY) and Boehringer Ingelheim. In December, the two companies announced a $12.5 billion asset swap in which Sanofi gained BI’s consumer health unit in return for handing over its animal health unit, Merial. The deal, expected to close later this year, will make BI’s Vetmedica the second-largest animal health company behind Zoetis, with 2015 sales of about $4.2 billion.

Bayer Animal Health, which brought in about $1.7 billion last year, will be quite a few notches below that, which is likely why Baumann is weighing the options for the company’s future in veterinary products. He said during the media briefing that he expects the unit to grow about 5% this year and that it has a profit margin around 20%.

But last April, Bayer failed to sell an animal health factory in St. Joseph, MO, which it had owned since it bought Teva’s veterinary assets in 2012. It eventually closed the plant and laid off 130 employees.

In addition to evaluating potential deals, Bayer has tried to expand its presence in animal health organically. It is working on developing new immune-boosting drugs for farm animals, for example. And it has made some investments in mobile technology, including an app to help dairy farmers better monitor the health of their herds.