With the $63.5B takeover of Monsanto by Bayer taking longer than expected, and a key patent for Xarelto expiring in 2024, Bayer’s execs are finding themselves defending their decisions.
With the $63.5 billion takeover of Monsanto by Bayer AG taking longer than expected, and a key patent for Xarelto expiring in 2024, Bayer’s executives are finding themselves defending their decisions. Shareholders are expressing concerns that Bayer’s drugs unit may not receive appropriate funding to deliver on its pipeline as its attention and resources shift to Monsanto.
Bayer’s healthcare unit handles both pharmaceuticals and consumer health. It makes up approximately two-thirds of the company’s sales, and when Bayer merges with Monsanto, its healthcare revenues will be about equivalent to those of seeds and pesticides.
In early November, Bayer signed a collaboration deal with Stamford, Conn.-based Loxo Oncology to develop and commercialize larotrectinib and LOXO-195 for patients with TRK fusion cancers. Under the deal, Bayer paid Loxo $400 million upfront. Loxo is eligible for $450 million in milestone payments upon larotrectinib regulatory approvals and first commercial sale events, and another $200 million in milestone payments for LOXO-195 approvals and sales. Bayer is pointing to this deal as proof that they’re also focused on strengthening their pipeline.
In response to questions regarding its pipeline, Bayer’s pharmaceuticals head, Dieter Weinand, told Reuters, “We have increased our R&D spend by more than a billion euros since I arrived and we have now more than 50 projects in clinical development. We don’t have a pipeline problem.”
But Weinand also undercut some investors’ hopes that the company might make more deals. “Buying additional pipeline would require additional funding for an even larger pipeline, which I don’t actually need at the moment,” he told Reuters.
A year ago, fund managers with Jupiter Asset Management and Union Investment expressed concern that Bayer would neglect its pharmaceutical business as it chased Monsanto. An unnamed fund manager told Reuters recently, “I would like to see more moves to strengthen the pipeline, but the question is, will they be able to finance them?”
Reuters writes, “Weinand said Bayer had proved it could maintain revenues, citing the firm’s track record in seeing late-stage drugs to market maturity, such as Xarelto, which generates almost 20 percent of sales for Bayer’s prescription drugs unit.”
Alisair Campbell, an analyst with Berenberg, told Reuters, “We’re probably unlikely to see the same level of success going forward,” and pointed out that Bayer’s pharmaceuticals pipeline was “still relatively empty.”
In 2016, Bayer projected its six most promising drugs in the pipeline could have a combined peak annual sales of at least 6 billion euros. Analysts generally think a lower amount is more realistic. Particularly since not all of them are likely to be approved. The company’s copanlisip for lymphoma received approval by the U.S. Food and Drug Administration (FDA), but another drug, anetumab ravtansine for mesothelioma flunked a Phase II clinical trial.
Weinand insists that anetumab is still a possibility, that about a third of patients in the trial presented durable tumor shrinkage, and the company is looking for diagnostic biomarkers that could help identify an appropriate subpopulation for the drug.
In addition, a recent clinical trial, Compass, showed Xarelto could be used to treat patients with severe atherosclerosis. That could push peak annual sales to $5.5 billion or past $6 billion before it falls off the patent cliff. Weinand argues the company is being “prudent” with its Xarelto projections. “What has changed that outlook is the really unique data on Compass that increased the revenue base at time of loss of exclusivity. Now the gap has increased, but that’s a great problem to have.”
