Bayer bracing for profit-margin drop

Bayer's profit margins are dropping as a result of the European debt crisis. The German drug giant is responding as any cautious drug company would--by stocking up on cash, Reuters is reporting.

Bayer CEO Marijn Dekkers (photo) is warning that delinquent payments, particularly in Greece, Italy and Spain, plus an overall cost-cutting trend on medicines, is forcing its profit margins in drugs and plastics to plunge.

"The debt crisis is pressuring our margins," Reuters quoted Dekkers as saying in an interview with a German newspaper.

Reuters notes the company has boosted its cash reserves "fivefold" in response to the debt crisis to about $5 billion U.S., although Dekkers said the current debt crisis isn't as bad as the global debt calamity that struck in 2008.

At the same time, Dekkers was optimistic about two other major issues. Reuters quoted him as saying the company would work with regulators to address an FDA advisory panel vote last week that ruled that the company's labeling of birth control pills Yaz and Yasmin doesn't adequately help women and doctors understand both benefits and risks of the drugs.

And Dekkers said Bayer continues to look toward growth in China, sustained by booming demand. We'll see about growth in China. FiercePharma highlighted Bloomberg coverage in November warning that both the Chinese central and provincial government are pursuing policies that have led to substantial price cuts.

As far as plastics? Dekkers suggested this year that Bayer's plastics division could be ripe for M&A.

- here's the Reuters story