Pharma giants Merck ($MRK) and Bayer have long been leaders in animal health--they placed 2nd and 5th respectively on our list of the top 10 animal health companies of 2015--but they have something else in common: Both have been subjected to persistent rumors that they’re trying to get out of the industry.
You wouldn’t know it from their second-quarter sales performance in animal health, however, not to mention moves by both companies to acquire new technologies for improving the health of pets and food animals. On July 27, Bayer reported that its animal health sales grew 4% year-over-year to a currency-adjusted €426 million ($476 million). Two days later, Merck said its animal health sales during the quarter rose 7% to $898 million.
Of the two companies, Bayer is the one that’s most burdened by speculation that it’s looking for a way out of animal health. The rumors became particularly heated when CEO Werner Baumann took over for departing CEO Marijn Dekkers in May and started questioning publicly whether Bayer could effectively compete in animal health without growing via M&A. The company had failed in the past to compete for acquisitions, missing opportunities to buy animal health assets from both Novartis ($NVS) and Schering-Plough. Then Bayer made a $63.5 billion bid for Monsanto ($MON), further fueling rumors that its priorities were no longer focused on animal health.
But last quarter, Bayer struck a global license agreement with Canada’s TransferTech Sherbrooke to develop a vaccine that protects dairy cattle from Staphylococcus aureus mastitis. And it teamed up with its German neighbor BioNTech AG to develop vaccines and drugs using messenger RNA technology. “We look forward to being able to bring more breakthrough products to help address unmet veterinary needs,” said Dirk Ehle, head of Bayer Animal Health, during the earnings announcement.
Merck has also made some key moves to boost its profile in animal health. During the second quarter, it paid $400 million for a controlling interest in Brazil-based Vallée, which sells more than 100 drugs for livestock and pets. The company expects the addition to boost its market presence in Latin America.
Merck CEO Ken Frazier seems to be honoring sentiments he expressed last summer during a conference call with analysts. He balked at suggestions that he should consider separating out the animal health unit to “liberate value” from it that might boost the company’s core business of developing pharmaceuticals for people. "We continue to see [animal health] as a key growth driver with healthy margins and a strong market outlook over the long-term," he said.
Will Bayer offload animal health to fund its Monsanto bid?
Bayer shows commitment to animal health with BioNTech R&D alliance
Bayer CEO on animal health: Either bulk up or get out
Merck boosts animal health portfolio with $400M acquisition of Vallée