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 Bayer Aktiengesellschaft (NYSE: BAY) is a conglomerate that produces pharmaceuticals and crop chemicals (fertilizers, pesticides, fungicides, herbicides) and plastics. In 2007, it had total revenues of more than €32 billion. In contrast to other pharmaceutical companies such as Pfizer that rely on one or two major drugs for a large portion of their revenue, Bayer has a diversified portfolio of drugs: its best selling 15 pharmaceutical products accounted for just 66% of its pharma revenue, and 21% of its total revenue in 2007. [1] In 2007 Bayer increased total sales, while at the same time undergoing intensive restructuring and corporate reorganization to reduce operational costs and increase profitability. Bayer faces many of the challenges common to all pharmaceutical giants, including FDA regulation , generic drug competition and litigation costs. The patent of Betaferon®, Bayer's second best-selling drug with over € 1 billion in sales, will expire 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. [edit] Company Overview [edit] Business Segments and Financials 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.
In 2007, Pharma grew 37.3 % compared to the previous year, mainly due to an increase in the sales of oral contraceptive Yasmin®/Yasminelle®/Yaz®'. Bayer added these two drugs, which account for 20% of the company's revenue when it acquired Schering AG. Betaseron®/Betaferon®, a form of beta interferon used to prevent relapse rate in people with multiple sclerosis, has shown steady growth at 6.5 %, becoming the second best selling drug. However, as a result of a study performed by Bayer, the company has decided not to submit a regulatory filing for the 500 mcg dose of Betaferon, thus limiting sales growth. [4] Bayer specializes in primary care drugs: Adalat® (used to lower high blood pressure), Avelox® (prescription antibiotic), Ciprobay® (antibiotic), Levitra® (used to treat erectile dysfunction), Glucobay® (diabetes therapy), as well as the famous Aspirin Cardio®. After the acquisition of Schering AG, Bayer also began competing in the diagnostic imaging market, with imaging contrast agents Magnevist®, Ultravist® and Iopamiron®. In the oncology market, Nexavar®, a kidney cancer drug, has shown a spectacular 116% growth, despite facing tough competition from Sutent® (Pfizer), Torisel® (Wyeth), and Avastin® (Roche and Genentech) Consumer Health grew at 10.3% in 2007, registering above-market growth in all three divisions. In the Consumer Care Division, the best selling products were Aspirin®, Aleve® (nonsteroidal antiinflamatory drug) and Canesten® (antifungal). In Diabetes Care, the Ascensia® glucose monitoring system product line had a 24% increase in sales, driven by strong growth in European and North American Markets. However, recent trends suggest that Bayer should be worried about its competitiveness in the diabetes market. While the sales for Ascensia® Contour® system grew at above market rates in the first half of 2008, sales for Ascensia® Breeze® actually declined 10.5%. The main reasons for this trend are Bayer's limited range of monitors based compared to its competition and the inability of the monitors to communicate with insulin pumps.[5] The Animal Health division grew 10.6%, with the Advantage® product line (flea control for cats and dogs) increasing by 20.8%.
Bayer is the world's second largest producer of polycarbonates (PC), thermoplastic materials with strong demand in the electrical and electronic sectors, and the largest producer of polyurethanes, materials used mainly as insulators in constructions. Both sectors grew in 2007 (by 8.0% and 6.4%, respectively), chiefly due to a significant increase in demand in Asian markets. Overall, the Materials division grew 7.9% in 2007. A similar trend was observed in the Systems division, whereby revenues expanded 5.5% on account of higher volumes and selling prices. In 2007, Bayer acquired a systems house business in Dubai and another in the US in order to strengthen the integration of the polyurethanes business unit. Although sales were up in Europe and Asia, business was down in North America due to a decrease in sales particularly to the automotive and construction industries.
Bayer also produces a wide range of crop-improving products: insecticides, herbicides, fungicides, seed treatments (Crop Protection) and Environmental Science products. The segment increased sales by 5.6% in 2007. Crop Protection grew 6.3% due to higher prices for agricultural commodities, increased global cultivation of crops for the production of biofuels and an improved market environment in Latin America. [edit] Trends and Forces[edit] Generic drugs limit brand name drug use and drive down prices
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®, Bayer's second best-selling drug with over € 1 billion in sales, is set to expire 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. [edit] Product development costs lower profit marginsDeveloping 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 $1,318 million.[6] Bayer has 21 drugs in Phase III and 19 drugs in Phase II clinical trials. However, many of these are already patented drugs that are tested for efficacy in treating new clinical conditions. The rate of success in these cases is usually higher than for newly discovered substances, as most of the times the chance of adverse effects is significantly lower for already established drugs. In total, Bayer spent €2.578 billion for R&D in 2007 (11.5% of total revenue), two thirds through Bayer HealthCare.[7] [edit] Litigation causes substantial losses and damages corporate imageCompanies in the health care industry face significant liabilities if a product is later found to be defective or produce adverse reactions. Even though such adverse effects are previously unknown and impossible to predict, damages claimed in such lawsuits are usually substantial. In 2007, Bayer spent €404 million on litigation disputes, mainly concerning product liability, patent infringement, tax assessments, and environmental matters. In February 2008, 335 lawsuits were pending against Bayer worldwide concerning the cholesterol-lowering drug Lipobay/Baycol. The drug was taken off the market in 2001, after reports of deaths and muscle breakdown. [8] As of October 2005, Bayer had settled 3,058 Lipobay/Baycol cases worldwide without acknowledging any liability and resulting in settlement payments of approximately US$ 1,143 million.[9] In April 2005, Bayer filed suit against Barr Pharmaceuticals and Barr Laboratories alleging patent infringement by Barr for its intended generic version of Bayer's Yasmin® oral contraceptive. Barr won the lawsuit, which ended with an agreement whereby Bayer agreed to supply a generic version of Yasmin® for Barr to market in the United States in return for a fixed portion of sales. [10] In August 2005, Abbott Laboratories commenced a lawsuit in the United States against Bayer and another party alleging infringement of two of Abbott’s patents relating to blood glucose monitoring devices. One of the devices concerned, sold by Bayer as part of its Ascensia® Contour® system, is supplied to Bayer by a Japanese manufacturer, who originally designed the product. As of February 1, 2008, Bayer has been served in a total of 29 lawsuits in the United States involving the gadolinium-based contrast agent Magnevist®.The plaintiffs allege that patients developed nephrogenic systemic fibrosis (NSF) as a result of the use of Magnevist® during medical imaging procedures. NSF is a rare, severe condition that can be debilitating and in some cases fatal. Plaintiffs seek compensatory and punitive damages under theories of strict liability and negligence and / or breach of warranty, claiming that the product is defective and unreasonably dangerous, that Bayer knew or should have known of the risks associated with Magnevist®, and has failed to disclose or adequately warn its users. [edit] Health insurance limits the use of expensive pharmaceuticalsChanges 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.[11] 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. [edit] Housing and automotive slumps decrease demands for plastic polymersMany of Bayer's thermoplastic polymers are used the automotive and housing industry, as coatings (for example, the substances that protects an automobile's surface and makes it shine are based on polyurethanes) and adhesives for wood, glass and other materials. Thus, a weaker demand on these markets negatively affects Bayer's revenues. In 2007, due to the US credit crunch and the slump in the automotive industry, sales decreased in the North American markets.  [edit] Biofuel production boosts the demand for crop-enhancement productsOver 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. [13] [edit] CompetitionIn the pharmaceutical field, Bayer competes in several specialized markets: women's healthcare, diagnostic imaging, specialized therapeutics, primary care, hematology/cardiology, and oncology.
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.
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