Dekkers says Bayer may add to animal health division with M&A, in time

Bayer CEO Marijn Dekkers

The release of Bayer's second-quarter earnings report came with an undeniable level of allure for investors interested in the rise of the animal health industry. Responding to an analyst, CEO Marijn Dekkers acknowledged the German-based company was in talks over the future of its animal health division--sparking curiousity regarding possible future M&A.

While tepid about the prospect of any quick decisions, he said on a conference call the drugmaker may beef up its business to better compete with rivals Zoetis ($ZTS) and Eli Lilly ($LLY): companies heating up competition in the industry. Novartis ($NVS) sold its animal health business to Eli Lilly--its animal health unit Elanco--for $5.4 billion last year, while Pfizer ($PFE) spun off Zoetis, remains the industry leader.

"We have a good animal health business, but of course things are happening in the animal health industry with Zoetis going public, and now the Novartis business going to Lilly, and that makes us take a look at I think mostly the question, to what extent is critical mass important in animal health," Dekkers said on the July 30 call to investors. "That is not a discussion that is super-urgent because things don't change in days or months, or probably even in a couple of years."

Bayer's animal health business is the fifth-largest worldwide. In 2012, Bayer picked up Teva's ($TEVA) animal health business for $145 million. Since then, there have been rumors that it might make an offer for Zoetis ($ZTS), or that it might trade its animal health operations to Merck ($MRK) in its deal to buy the company's consumer health business. None of the rumors panned out, but Dekkers didn't shy away from giving the company's position on Merck.

"... We really want to do the Merck acquisition," Dekkers said. "Whether that's all translatable also in an animal health business is an interesting strategic question that Bayer is occupying itself with."

Bayer's animal health business posted sales gains, especially in emerging markets. It brought in €358 million ($481 million) for the second quarter, up 5% from the same period last year. Bayer forecasted the unit to grow 4% in 2014, it wrote in a newsletter to stockholders last month.

Second-quarter growth was driven by sales of the division's Seresto flea and tick collar, the company reported, which picked up momentum in the U.S. The Advantage line of flea, tick and worm control products, meanwhile, slumped.

- here's Bayer's material for the second-quarter earnings report

Special Report: Top 10 animal health companies of 2013 - Bayer