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WIKI ANALYSIS
Bayer Aktiengesellschaft (OTC: BAYRY) is a conglomerate that produces pharmaceuticals and crop chemicals (fertilizers, pesticides, fungicides, herbicides) and plastics. In 2009, it had total revenues of €31.2 billion.[1]
Bayer faces many of the challenges common to all pharmaceutical giants, including FDA regulation , generic drug competition and litigation costs. The patent of Betaferon, once Bayer's second best-selling drug with over € 1 billion in sales, expired in 2008 in the US, Japan and most European markets.There is also a growing political pressure in the United States and abroad to lower medication prices.
Company Overview
Business & Financial Metrics[1]
In 2009, Bayer saw a decrease of 5.3% in total revenues from $32.9 billion to $31.2 billion. In addition, expenses in areas like research and development increased. As a result, net income decreased by 20.9% from 2008 to $1.4 billion in 2009.
Business Segments
Bayer is active in three main business areas: health care, crop science and material science. Business activities are supported by the service companies Bayer Business Services, Bayer Technology Services and CURRENTA, the operator of Bayer's chemical facilities.
HealthCare[2]
Bayer's HealthCare segment is driven by its pharmaceuticals business but also includes its "Consumer Care Division," which produces over-the-counter medicines like Aspirin, Aleve, and Alka-Seltzer. Bayer's presence in emerging markets is its best opportunity for revenue growth within its HealthCare segment.
CropSciene[3]
The CropScience segment creates products to aid farmers with crop growth, protection, and preservation. Its Crop Protection unit develops and markets herbicides, fungicides, and insecticides. Bayer's CropScience segment markets its products in more than 120 countries and focuses on expanding in eastern European, Russian, Indian, Chinese, and Brazilian markets.
MaterialScience[4]
Bayer's MaterialScience segment creates and markets a variety of non-medical products for industrial and commercial customers including cosmetics, carbon nanotubes, medical coatings & adhesives, and polyurethanes.
Trends and Forces
Generic drugs limit brand name drug use and drive down prices
- For a detailed discussion of brand name vs generic medication, see also Brand name vs Generic medications.
The patent of the imaging contrast agent Magnevist expired in 2007, causing the total sales of the product to drop by 1.3% compared to 2006. The patent of Betaferon, once Bayer's second best-selling drug with over € 1 billion in annual sales, expired in 2008 in the US, Japan and most European markets. However, most of the other drugs in Bayer's portfolio will be protected by patents for at least 7 more years. The formulation for Yasmin/Yaz/Yasminelle, the best-selling family of oral contraceptives, is under patent until 2020. In contrast, Pfizer's Lipitor, the cholesterol-lowering drug that accounts for more than a quarter of the company's revenue, is set to expire in 2010.
Product development costs lower profit margins
Developing a new drug is a time-consuming and costly endeavor. Hundreds of thousands of candidate compounds must be screened to identify a handful of potential drugs, and even fewer of these candidate drugs are found to be effective at treating a disease. The drug must then pass strict safety standards in several series of clinical trials. The entire process of developing a new drug and bringing it to the market takes up to 10 to 15 years and on average costs $1,318 million.[5]
Health insurance limits the use of expensive pharmaceuticals
Changes in health care coverage may impact sales. If an insurance program changes its policies and removes coverage for a certain treatment, sales are likely to decrease. In general, insurance programs are more likely to cover essential expenses, such as heart disease or cancer medication, and less likely to cover nonessential expenses, such as cosmetic surgery.
Bayer and Onyx's drug Nexavar was approved for the treatment of kidney cancer in the United States, Europe and Japan. However, in UK for example, the treatment was deemed cost-ineffective by the National Institute for Health and Clinical Excellence.[6] Treatment with Nexavar and other related drugs costs between £20,000 and £35,000 per patient per year in England, while the cost-effectiveness limit for NICE is £30,000 per good-quality year of life gained. NICE thus decided not to buy the drugs, with a negative effect on Nexavar's sales.
Biofuel production boosts the demand for crop-enhancement products
Over the last 5-10 years, incresing demand for corn based ethanol has led to increased corn cultivation, which in turn produces higher demand for improved crop seeds and crop protection chemicals, products of the Bayer's CropScience segment. A research study conducted by Freedonia predicts that the world biofuel market will double through 2011. [7]
Competition
In the pharmaceutical field, Bayer competes in several specialized markets: women's healthcare, diagnostic imaging, specialized therapeutics, primary care, hematology/cardiology, and oncology.
- In women's healthcare, the Yasmin/Yasminelle/Yaz line of oral contraceptives mainly competes with Johnson & Johnson's Ortho Tri-Cyclen , (market leader in oral contraceptive sales until its patent expired in 2008), Barr Pharmaceuticals (BRL)'s Seasonelle/Seasonique line and Warner Chilcott (WCRX)'s Loestrin 24 Fe and Femcon Fe. However, Yaz has the advantage of being the only first and only oral contraceptive to be approved by FDA for three distinct uses: birth control, acne treatment and premenstrual dysphoric disorder (PMDD).[8] Bayer's intrauterine device Mirena competes with Johnson & Johnson's Ortho Evra weekly patch, the favorite non-oral contraceptive method in the US.
- In the oncology market, Nexavar, a kidney cancer drug, competes with Sutent (Pfizer), Torisel (Wyeth), and Avastin (Roche and Genentech).
- In diagnostic imaging, the gadolinium-based contrast agent Magnevist is the best-selling MRI contrast agent in the US and worldwide. It has been used in more than 90 million procedures worldwide since its introduction, and currently has the broadest range of FDA-approved indications for adult and pediatric patients. Ultravist, an angiography (X-ray radiography of blood vessels) contrast agent, is also a market leader in sales, due to its low toxicity and ease of administration.
- In the diabetes market, the Ascensia Contour and Ascensia Breeze glucose monitoring systems compete with similar devices from Roche Pharmaceuticals (RHHBY) (Accu-Check) and Johnson & Johnson (LifeScan). LifeScan has a relationship with Medtronic (MDT) and Animas, allowing their insulin meters to communicate with insulin pumps.Bayer also has a relationship with Medtronic, but this is for pumps outside the U.S. With pump placements in the U.S. making up nearly two-thirds of all pump sales, the international market offers only a limited opportunity.
- In the hematology market, Kogenate competes with many other drugs from various pharmaceutical companies. The main competitor are BeneFIX
In the chemical products market, Bayer's main competitor is Dow Chemical Company (DOW), which produces a wide range of polymers and other chemicals. However, Bayer holds very good positions in the polycarbonates market (second in worldwide sales) and polyurethanes (leader in sales).
In the crop enhancement market, Bayer has has many smaller, regional competitors.
| R&D ($M) | R&D % Revenue | Revenue ($B) | Net income ($B) | EBIT margin | |
| DuPont (2009) [9] | $1,378 | 5.3% | $26.1 | $1.76 | 8.0% |
| BASF SE (BASFY) (2009) [10] | €1.4M | 2.8% | €50.7 | €1.4 | 7.25% |
| Bayer AG (BAYRY) (2009) [11] | €2746 | 8.80% | €31.2 | €1.359 | 9.6% |
| Dow Chemical Company (DOW) (2009) [12] | $1,492 | 3.3% | $44.9 | $0.676 | 4.5% |
| Monsanto Company (MON) (2010) [13] | $1,205 | 11.4% | $10.5 | $1.1 | 15.3% |
References
- ↑ 1.0 1.1 Bayer Group Consolidated Income Statements 2009. Bayer.
- ↑ Bayer Annual Report 2009.
- ↑ Bayer Annual Report 2009.
- ↑ Bayer Annual Report 2009.
- ↑ "2008 Pharmaceutical Industry Profile, page 2. phrma.org. Retrieved on 2008-08-10.
- ↑ Renal cell carcinoma - bevacizumab, sorafenib, sunitinib and temsirolimus: evaluation report. NICE.org.uk (August 7, 2008). Retrieved on 2008-08-09.
- ↑ World Market for Biofuels Expected to Double (May 13, 2008, accessdate=8-31-2008).
- ↑ FDA Approves A New Pill For Treatment Of Acne. bio-medicine.org (2007-01-31). Retrieved on August 8, 2008.
- ↑ Dupont 2009 10-K, p. 16
- ↑ BASF Annual Report 2009, Consolidated Financial Statements
- ↑ Bayer 2009 Annual Report, Consolidated Financial Statements
- ↑ DOW 10-K 2009, Item 1 "Business," page 10
- ↑ http://www.sec.gov/cgi-bin/viewer?action=view&cik=1110783&accession_number=0000950123-10-096537# MON 10-K 2009]
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