Marijn Dekkers, Bayer's Management Board Chairman and CEO, recently outlined the company's progress in demerging its material sciences business to become a pure-play life sciences company by mid-2016 at the latest. So how would Bayer's pharma business measure? DCAT Value Chain Insights examines the company's pharma position.
Chairman and CEO
Photo courtesy of Bayer AG
Marijn Dekkers, Bayer's Management Board Chairman and CEO, outlined the company's progress in demerging its material sciences business to become a pure-play life sciences company. Dekkers provided the update a the company's annual stockholder meeting in Cologne, Germany last week.
“We are convinced that Bayer has outstanding growth perspectives as a pure life science company,” said Dekkers in a company statement. Bayer's life sciences businesses consists of Bayer HealthCare (which includes pharmaceuticals and consumer health care) and Bayer CropSciences. Bayer has announced that the new name of its MaterialScience business will be Covestro. It will be effective on September 1, 2015. Bayer intends to float Covestro on the stock market by mid-2016 at the latest. The plan for Bayer MaterialScience to become a separate company was announced in September 2014.
Bayer HealthCare: an inside look
Bayer HealthCare accounted for 47% of Bayer's total 2014 revenues of EUR 42.2 billion ($46.3 billion) with its pharmaceutical business accounting for 28% and its consumer healthcare business 19% of total revenues for Bayer AG. The pharmaceuticals segment focuses on prescription products, especially for women’s healthcare and cardiology, and also on specialty therapeutics in the areas of oncology, hematology, and ophthalmology.The company's consumer health segment includes the consumer care business (non-prescription medicines, dietary supplements, and dermatology products), medical care (includes the diabetes care business unit, which markets blood glucose monitoring systems, and the radiology business unit, which offers contrast-enhanced diagnostic imaging equipment along with the necessary contrast media), and the animal health division (makes products for livestock and companion animals). Bayer CropScience accounted for 22% and the to-be-demerged material science business 28%.
In 2014, Bayer's pharmaceutical business generated revenues of EUR 12.1 billion ($13.2 billion). The primary growth drivers in the pharmaceuticals business in 2014 were the recently launched products: the anticoagulant Xarelto (rivaroxaban), the eye medicine Eylea (aflibercept), the cancer drugs Stivarga (regorafenib) and Xofigo (radium 223 dichloride), and Adempas (riociguat) to treat pulmonary hypertension. These products generated combined sales of EUR 2.9 billion ($3.2 billion) in 2014, which was nearly twice as much as in the previous year. Bayer expects this figure to rise further to more than EUR 4 billion ($4.4 billion) in 2015. Table I highlights Bayer's top-selling pharmaceutical products in 2014, which on a collective basis accounted for 78% of the company's pharmaceutical sales.
The company's top-selling product, the oral anticoagulant Xarelto, had strong sales gains, especially in Japan, France and Germany. Royalties received and recognized as sales in the United States, where Xarelto is marketed by a subsidiary of Johnson & Johnson, more than doubled. Following its approval
in additional indications, sales of the company's eye medicine Eylea increased, particularly in Europe. The cancer drug Stivarga developed positively, and the cancer drug Xofigo also saw higher sales, especially in the United States. The market introduction of Adempas to treat various forms of pulmonary hypertension
continued in additional countries. Since October 2014, Bayer has been collaborating with Merck & Co., Inc., in the development and commercialization of Adempas. sales attributable to Bayer amounted to EUR 89 million ($98 million) in 2014 (2013: €3 million). Sales of the hormone-releasing intrauterine devices of the Mirena product family rose mainly as a result of higher prices and volumes in the United States. The cancer drug Nexavar posted gains, mainly as a result of price increases in the United States. Adalat for the treatment of hypertension and coronary heart disease, Aspirin Cardio for secondary prevention of heart attacks and the company's oral diabetes treatment Glucobay benefited from further rising demand in China. Sales of the company's blood-clotting medicine Kogenate declined due partly to the temporary use of production capacities to develop the company's next-generation hemophilia medicines. Sales of the multiple sclerosis drug, Betaferon/Betaseron, fell particularly in the United States due to increased competition there. Sales of Yaz/ Yasmin/Yasminelle, oral contraceptives, were held back especially by genericcompetition in Western Europe and lower demand in Japan. Despite higher volumes in China, sales of
the antibiotic Avalox/ Avelox declined overall, due particularly to the expiration of the patent in Europe and the United States. Sales of Levitra for the treatment of erectile dysfunction were down primarily in the United States.
In 2014, Bayer's consumer healthcare business generated sales of EUR 7.9 billion ($8.65 billion). Pro forma sales of two key acquisitions in the company's over-the-counter pharmaceutical business, the $14.2 billion acquisition of Merck & Co. Inc's consumer healthcare business (deal closed in October 2014) and the acquisition of Dihon Pharmaceutical Group Co. Ltd., China, which offers self-medication products in the fields of dermatology and traditional Chinese medicine (deal closed in November 2014),was EUR 1.6 billion ($1.75 billion).
As in the pharmaceuticals business, new products were the main drivers of growth in the company's crop protection business as well. Products Bayer has introduced to the market since 2006 achieved combined sales of EUR 1.9 billion ($2.08 billion) (2013: EUR 1.5 billion ($1.6 billion)). Bayer is targeting a further increase to approximately EUR 2.8 billion ($3.1 billion) by 2017.
| Table I: Bayer Healthcare's Top-Selling Pharmaceutical Products, 2014*
|Product (Proprietary Name)
|| Active pharmaceutical ingredient
|| 2014 Sales; percentage
change 2014 over 2013*
|| EUR 1.678 Bn ($1.840 Bn); +76.9%
|| antihemophilic factor (recombinant)
|| EUR 1.109 Bn ($1.215 Bn); -7.7%
|| interferon beta 1b
|| EUR 819 M ($898 M);-21.1%
| Mirena product family
|| EUR 819 M ($898);+13.9
|| EUR 773 M ($847 M);+0.3%
| Yasmin/ YAZ/ Yasminelle
| EUR 768 M ($842 M);-10.0%
|| EUR 759 M ($832 M); 127.9%
|| EUR 588 M ($644 M);-2.5%
| Aspirin Cardio
|| acetylsalicylic acid
|| EUR 486 M ($533 M);+7.5%
|| EUR 443 M ($486 M);+4.7%
|| EUR 381 M ($418 M);-10.6%
|| EUR 245 M ($269 M);-15.5%
|| EUR 224 M ($246 M);+13.7%
|| EUR 191 M ($209 M);-3.0%
||EUR 168 M ($184 M);-2.3%
|These products constituted 78% of company's pharmaceutical sales in 2014.
Bn is billions; M is millions. Currency exchange as of June 1, 2015 (1 EUR = US$0,91); Revenue percentage change on a reported basis.
Source: Bayer AG/Bayer Healthcare
Bayer's strategic priorities
Dekkers listed four strategic priorities for Bayer’s successful further development. First, the company plans to focus on further driving forward the organic growth of its HealthCare and CropScience business through new product development. Overall, Bayer plans to invest more than EUR 4 billion ($4.4 billion) in research and development in 2015. At the focus of our clinical development are five active substance candidates currently in Phase ii trials. These are finerenone, vericiguat and molidustat in the cardiology and cardiorenal syndrome areas, copanlisib in oncology and vilaprisan in gynecology.
The second priority listed by Dekkers was the further integration of the consumer care business of Merck & Co., Inc., and Dihon Pharmaceutical, China, two acquisitions made by Bayer in 2014, to strengthen its non-prescription medicines business.
The third area of focus is the demerger of its material science business. The planned stock market flotation is targeted for mid-2016 at the latest. The next important step will be the economic and legal separation of that company. Bayer will likely decide in the second half of the year which of the possible options is to be used for the stock market flotation. Parallel to this process, Bayer’s fourth strategic priority is to drive forward the complete alignment toward the life science businesses. In this connection, the Group’s corporate structure is currently being examined and restructuring proposals are being developed.
“I must emphasize in this connection that it is not about cutting jobs. We continue to anticipate that the number of employees at Bayer will remain stable in the coming years, both worldwide and in Germany,” Dekkers said in a company statement. He said that as pure life science company, Bayer will be able to optimally deploy its strengths: its competencies in research and development and in marketing, a pipeline of innovative products, its strong brands, a diversified portfolio, and a strong presence in emerging markets.
“At the same time, we will benefit from major similarities in our business model,” Dekkers said referring to biochemical processes in organisms and the related mechanisms that serves as a basis for inventing and producing new molecules.
Production and procurement
One issue going forward for the company as it splits the company is the future of its procurement, manufacturing, and supply functions. Currently, both procurement and production are decentrally organized in the Bayer Group and are aligned to the individual requirements of the respective subgroups’ businesses, according to the company's 2014 annual report. Overall, iIn 2014, goods and services were procured from some 112,000 (2013: some 107,000)
suppliers in 147 (2013:138) countries for approximately EUR 20.3 billion ($22.2 billion). The procurement volume in Germany, the United States, and Japan in 2014 accounted for nearly 66% of the expenditures in the countries of the OECD (Organization for Economic Cooperation and Development), or about 52% of the Bayer Group’s total procurement spend. Brazil, India, and China together accounted for about 70% of the expenditures in the non-OCED countries or about 14% of the total spend. Overall, Bayer AG had 78,135 suppliers in OCED countries in 2014, which was 69.9% of its total,which included 34.4% located in Germany, the United States, and Japan.
Direct and production-related procurement at Bayer is organized decentrally in the subgroups. Indirect and non-production-related goods and services are sourced in each case by the organizational unit that is their major user within the Bayer Group. The company-wide procurement strategy and application of the
major-user principle are used to realize synergy potentials in the form of standardization, volume pooling, and streamlining of negotiations. The activities of the various procurement organizations are coordinated through the Group Procurement Committee, which reports to the chief financial officer.
In order to continuously drive and measure sustainability in supplier management, we have set ambitious
The charmaceuticals segment generally procures the starting materials for the active ingredients of its prescription pharmaceuticals from external suppliers. The company's active ingredients are manufactured primarily at the sites in Wuppertal and Bergkamen, Germany and Berkeley, California. Among the sites where formulating and packaging take place are Berlin, Leverkusen and Weimar, Germany; Garbagnate, Italy; Beijing,
China; São Paulo, Brazil; and Turku, Finland. For the consumer care Division of the company's consumer health segment, the company's produce certain active substances, such as acetylsalicylic acid and clotrimazole, in La Felguera, Spain. The principal raw materials are purchased from third parties include naproxen, citric acid, ascorbic acid, other vitamins, and paracetamol. Among the division’s production sites are the facilities in Myerstown, Pennsylvania; Cimanggis, Indonesia; Lerma, Mexico; Bitterfeld-Wolfen, Darmstadt and Grenzach-Wyhlen, Germany; Madrid, Spain; and Segrate, Italy. The company's production network further expanded through the acquisitions of the consumer care business of Merck & Co., Inc. and Dihon Pharmaceutical Group Co. Ltd. Animal health
products are manufactured mainly at the sites in Kiel, Germany, and Shawnee, Kansas.