10. Bayer (healthcare businesses)
Headquarters: Leverkusen, Germany
2016 revenues: €23.98 billion ($25.27 billion)
2015 revenues: €22.87 billion ($24.09 billion)
Bayer had a big year in 2016, its first full year with CEO Werner Baumann at the helm. Its quintet of “growth products” delivered more than €5 billion in sales, led by surges from blood thinner Xarelto and vision injection Eylea.
And it inked a $66 billion megamerger with ag giant Monsanto.
Bayer’s healthcare-oriented businesses have been reliable growth drivers, leaving its Crop Science unit in the dust. Though analysts see some serious synergies in the Bayer-Monsanto combo, they also worry that the company’s attention and resources will flow away from the healthcare side, particularly pharma R&D.
All this is to say that, after 2017, Bayer would be a very different company if the Monsanto deal closes, with half or more of its sales in agriculture, rather than prescription drugs, consumer healthcare and animal health.
To see where the dangers lie—or, conversely, to see how Bayer might count on its healthcare businesses to buoy results as it does the tough work of integrating two giant ag businesses—take a look at its 2016 results.
Prescription drug sales expanded by 8.7% to €16.4 billion, the company said in its annual earnings release, with Xarelto and Eylea leading the charge. The blood thinner grew by 30% last year, in currency-adjusted terms, thanks to higher script numbers in Europe and Japan. The German company also collected bigger licensing revenues on the drug from U.S. partner Johnson & Johnson. Total? Almost €3 billion.
Eylea, for its part, surged by almost one-third to €1.62 billion.
The boost from Bayer’s top-performing meds, plus increases in consumer health (3.5%) and animal health (4.8%), pushed the German company’s total healthcare-related revenue above €22 billion. Crop Science by contrast brought in just €9.91 billion, and it’s Bayer’s only nonhealthcare business that’s still wholly owned. The company took its plastics unit, Covestro, public in 2015 and now owns just 64%; it plans to get out of it completely in the “medium term,” perhaps by putting the company on the block or by selling its shares on the open market.
Meanwhile, not all of Bayer’s pharma portfolio is growing. Take the company’s hemophilia franchise, long a reliable performer. The company won U.S. approval for a longer-acting hemophilia med, Kovaltry, in March, but at a time when other companies are launching their own next-gen rivals. Together with the older med Kogenate, which it’s designed to improve upon, Kovaltry brought in blockbuster-plus sales for 2016—just flat year-over-year.
And Bayer execs acknowledge the difficulty of a new hemophilia rollout. "It's not a market where you see the kind of adoption rates you see in oncology," Hansjoerg Duerr, Bayer Hematology's head of global strategic marketing, told FiercePharma early last year, adding that "if people are very satisfied with their current product, it's a step into the unknown."
Bayer’s older multiple sclerosis drug, Betaseron, actually declined in 2016 as it loses exclusivity in various markets and faces new competition, with sales down more than 10% to €734 million. Cancer therapy Nexavar, which still brings in hefty sales—€830 million for the year—faces a patent loss in 2020 and might have to deal with generics sooner if challenger Mylan has its way.
And Stivarga, one of Bayer’s growth products, is seeing declines itself. A new rival, Lonsurf from Japanese drugmaker Otsuka, was approved in October 2015, and it has since played a part in eroding Stivarga sales. Last year, the Bayer med dropped 12%, to €275 million.
Bayer maintains that those five growth products—Xarelto, Eylea, Stivarga, pulmonary hypertension med Adempas and cancer radiotherapy Xofigo—will bring in €6 billion in 2017. And that might well be the case, despite a trial disappointment for Adempas last year: Xarelto scored a win in February 2017 for a possible new CV prevention use in patients with artery disease, and more key data is due later this year. Some analysts think Bayer has been more than a little conservative in its Eylea forecast, too.
Longer term—that’s the worry. Nexavar goes off patent in 2020 and may see knockoff competition sooner than that, so Bayer needs to get more new meds to market quickly. There’s not much in the pipeline, though, beyond a cancer med called anetumab ravtansine, which Bayer is studying in a multicancer trial. Bayer has high hopes for it—peak sales of more than €2 billion—but analysts are skeptical.
“Bayer is feeling a certain euphoria about the pipeline product anetumab, which I can’t comprehend at the moment,” a top shareholder, Markus Manns of Union Investment GmbH, recently told Bloomberg. “Not much data has been published yet.”
Indeed, Bayer’s recent €6 billion estimate for key pipeline meds by 2021—including anetumab and a prostate cancer med that now goes by the name ODM-201—didn’t impress investors much, either. That estimate was part of Bayer’s Monsanto deal presentation. Bayer also said it’s planning to increase R&D spending. Whether it can sustain that increase is the question.