2018 revenue: $29.88 billion (€25.32 billion)
2017 revenue: $30.02 billion (€25.44 billion)
Headquarters: Leverkusen, Germany
As Bayer completed its gigantic Monsanto crop science buyout in summer 2018, investors turned their eyes to the German company’s drug business, wondering how it could sustain growth after key therapies Xarelto and Eylea go off patent around 2024.
Specifically, Bernstein analyst Wimal Kapadia noted that Bayer’s shares were weighed down by its multiple divisions, and that a breakup could give the stock a boost and pump in some cash for licensing deals to beef up its slim pipeline.
Management heeded the advice. In November, it unveiled a large overhaul that includes some selloffs and cost cuts on top of that. As part of the shakeup, the company’s animal health business will be cast off, and so will its sun care line Coppertone and foot care brand Dr. Scholl’s in the consumer health franchise. Before that, Bayer had already reached a deal to sell its prescription dermatology business—which is also managed under its consumer umbrella—to Leo Pharma.
At the same time, Bayer put about 10% of its workforce—or 12,000 jobs, across pharma R&D, manufacturing, consumer, crop science, and corporate functions and business services—on the chopping board. The aim, according to group chairman Werner Baumann: improve its cost structure and enhance competitiveness as a whole.
Johnson & Johnson-partnered blood thinner Xarelto and Regeneron-partnered eye treatment Eylea are Bayer’s clear near- and midterm growth drivers, but both are looking at a dimmer outlook for 2019.
Last year, Xarelto posted 12.8% sales growth at constant foreign exchange rates, reaching €3.63 billion. But that didn’t appear to be coming much from a new approval in patients with coronary or peripheral artery disease, despite its status as the first novel oral anticoagulant in that market on the back of strong cardiovascular outcomes data. And the company is only projecting growth in the low teens for 2019.
On the company’s fourth-quarter earnings call, Bayer pharma chief Stefan Oelrich compared it to Novartis heart failure drug Entresto, which suffered a slow start of its own. Based on what he saw from Germany, Oelrich attributed the slow uptake in the new indication to a change in treatment paradigm, arguing that the drug has some convincing to do.
What’s more, in the U.S., where Bayer registers licensing revenues from Xarelto, J&J was facing a tough competitive market as Pfizer and Bristol-Myers Squibb’s Eliquis continued to grab share. And payer discounting has already hurt sales. As J&J reported a 14.4% dip in fourth-quarter Xarelto sales, Bayer’s U.S. revenue from the product dropped more than 10% in the same period.
As for Eylea, that drug’s sales jumped nearly 20% at fixed exchange rates, generating €2.19 billion for Bayer in 2018. But the company is now predicting a mere high-single-digit growth rate for 2019. Oelrich said the company was seeing “a little bit of a softening of the growth trend on Eylea.”
Plus, Novartis’ next-generation VEGF inhibitor brolucizumab is right around the corner. Although data show the drug only matched Eylea in delivering visual gains in age-related macular degeneration, it did show some additional benefits in a couple of secondary endpoints, not to mention its additional benefit of less frequent dosing.
Outside of the two blockbusters, Bayer’s hemophilia franchise—including factor VIII therapies Kogenate, Kovaltry and newer entrant Jivi—has been under pressure from Roche’s fast-moving Hemlibra. Together, the Bayer franchise turned up only €855 million in sales last year, down 8.8% at constant exchange rates.
Citing “a significant increase in competition,” Bayer is shutting down its factor VIII factory in Wuppertal, Germany, and instead will focus production at its Berkeley, California, site, which saw its own round of layoffs last year.
Hemophilia isn’t the only area where Bayer is wrestling with Roche. In February, triggered by Eli Lilly’s $8 billion Loxo Oncology buyout, Bayer decided to take full control of two Loxo drugs, including Vitrakvi, the first drug to get initial FDA approval in tumors with NTRK gene fusion regardless of location. Roche’s potential rival entrectinib just won FDA priority review in that same indication and in non-small cell lung cancer with ROS1 gene fusion.
One near-term positive prospect in Bayer’s thin pipeline is androgen receptor antagonist darolutamide. In a phase 3 trial, the drug staved off metastasis by a median 40.4 months in patients with nonmetastatic castration-resistant prostate cancer—22 months longer than what placebo posted. As Bayer management and Bernstein’s Kapadia both see it, the drug’s strong safety profile could be a real differentiator against J&J’s newcomer Erleada and Pfizer and Astellas’ blockbuster Xtandi.
In 2018, Bayer’s consumer and animal health portfolios remained largely flat at constant foreign exchange, though their reported numbers were hurt by a strong euro. Using Pfizer's Zoetis and Eli Lilly's Elanco as benchmarks, Kapadia previously suggested that Bayer’s animal health business could be worth €7 billion. Divesting it and some consumer products will help free up cash for external R&D collaborations and licensing deals to beef up its pharma pipeline.