Bill Anderson, nine months into Bayer’s CEO role, has laid out his priorities for the troubled German conglomerate in the next few years—and it doesn’t involve an immediate business split-up as many investors had hoped for.
Forgoing the hoity-toity podium on an elevated stage in exchange for a three-leg desk, Anderson during an investor day Tuesday presented four challenges at Bayer that he plans to address in the next two to three years: a weak pipeline at the pharma division, U.S. litigation, high debt levels and bureaucracy.
As to separating pharma and consumer health from agriculture, “our answer is ‘not now’—and this shouldn’t be misunderstood as ‘never,’” Anderson said in a statement.
Anderson is adopting the new strategy because of the limited options that Bayer has, and the goal, he said, is to boost Bayer’s performance to create “strategic flexibility” so that more ambitious moves could be possible.
Anderson’s plan is both disappointing and reassuring for investors. They could be disappointed because despite years of outcries for a breakup, Bayer will remain in one piece for at least another two years. But Anderson articulated that separation remains an option that he’s willing to turn to once Bayer gains that “strategic flexibility.”
“Virtually all our competitors are now pure-play, and it’s pretty clear why that happens—that is the simplest approach, and it’s got a lot of appeal,” Anderson said of a potential breakup. “That said, you also have to consider where your starting point is. Those four broken areas that I mentioned, they do limit our degrees of freedom.”
Whatever form a separation may take, whether it’s an IPO or a spinoff, Bayer will have to put all hands on deck for at least two years to execute it. That means Bayer wouldn’t be able to simultaneously tackle the many other problems that the company is facing, Anderson said, citing his conversations with fellow CEOs who have done a business breakup.
Bayer considered a potential sale of consumer health, Anderson said. But although such a deal would immediately give Bayer some cash to pay down debt, the tax losses would be significant, and Bayer would lose a business that’s reliably generating cash flow. Besides, consumer health businesses don’t boast the best valuations in recent years, he noted.
But more importantly, a business separation wouldn’t address Bayer’s litigation problem around its Roundup weedkiller and polychlorinated biphenyls—both inherited from Monsanto—or the pharma patent cliff, Anderson said.
Bayer’s two top-selling drugs, Johnson & Johnson-partnered blood thinner Xarelto and Regeneron-partnered eye med Eylea, are losing patent protection outside the U.S. up to around 2026. That’s why Bayer is launching a “full-scale effort” to rejuvenate its pharma pipeline, Anderson, a pharma veteran, wrote in a LinkedIn post.
Bayer’s pharma pipeline has big upside potential, Anderson said, “but we got to make it happen.” To Anderson, Bayer has a strong early pipeline, with 13 new molecules that it’s moving into clinical studies over the last two years.
“But we need more in phase 2 and phase 3,” Anderson said.
Moving in that direction, Bayer on Monday unveiled a deal with BridgeBio, paying $310 million in upfront and near-term milestones for European rights to acoramidis, a potential rival to Pfizer’s blockbuster Vyndaqel heart disease franchise. A European Medicines Agency application for the drug in transthyretin amyloid cardiomyopathy was just filed in January.
As for the litigation burden, Bayer is “updating its strategy and pursuing new approaches,” the company said Tuesday.
It’s clear that “defense is not enough,” Andersons said Tuesday. “We’re going to look at litigation through every angle, both inside the courtroom and outside the courtroom. We have to thoroughly engage with more stakeholders on this because it’s not just a Bayer problem.”
“You should expect to see considerably more action from us,” Anderson continued, “but we will only be talking about these things when and where it’s in our interests.”
Bayer had already spent about 13 billion euros on litigation in the past five years and another 11.7 billion euros on dividends. As of the end of 2023, Bayer had 34.5 billion euros of net debt, which wasn’t so different from the 35.7 billion euros the company had as of the end of 2018, the year that the Monsanto acquisition closed.
Bayer is already targeting its dividend to reduce its debt. A few days ago, the company said it would propose a dividend of 0.11 euro for 2023, compared with 2.4 euros for the prior year. Eventually, Bayer hopes to achieve an A credit rating.
To reduce bureaucracy, the company recently launched a restructuring that will cut managerial roles. The overhaul will take out 2 billion euros in annual organizational costs from 2026, according to Bayer.
During Tuesday’s event, Anderson assured that the reorg wasn’t aimed at letting fewer people handle more tasks but at reducing the multiple hierarchy levels.
“The problem at Bayer is not the culture—it’s the bureaucracy, it’s the layers, it’s the approvals,” Anderson said. “You can have all the positive culture you want, but if it takes five signatures to replace a pump in the plant, then the culture is not going to save you. This is the phenomenon we face at Bayer.”
Anderson pointed to a 1,362-page rulebook that all employees are supposed to follow and a recent case in which a top-20 senior executive had to sign off on a 52,000-euro refund from a contractor, calling it “craziness.”
“What I found is the people of Bayer are ready for change, they’re saying, bring it on,” Anderson said.
With the new strategies kicking off, Bayer expects to generate sales of 47 billion to 49 billion euros in 2024 on a currency-adjusted basis, compared with 47.6 billion euros in 2023. Within the forecast, pharma is expected to drop 4% or stay flat, while consumer health is anticipated to grow 3% to 6%.