Bayer to refocus on core businesses
Following its reorganisation, the Bayer Group intends to maintain its focus on its core businesses and concentrate all its financial and management resources on developing and expanding its research-intensive activities in healthcare, nutrition and innovative materials. Bayer's new realignment includes repositioning the pharmaceuticals business. It will concentrate its research effort on therapeutic areas where it already plays a leading role and has developed successful products: anti-infectives, cardiovascular (including diabetes and obesity) and urology. Bayer also has a number of promising product developments in the oncology field.
'We have examined all the options for this business - especially the possibility of partnerships. We found that none of these solutions would have adequately reflected the value of our pharmaceuticals business,' said Bayer ceo Werner Wenning. 'We therefore intend to focus on our own strengths and steer our pharmaceuticals division with significantly modified structures towards a successful future.' The pharma division headquarters will be moved to Wuppertal, Germany, where its global r&d hq is already situated.
The pharmaceuticals division will be positioned as a medium-size business that will be focused more strongly on Europe, though without neglecting the important markets in the US and Asia. According to Wenning, considerable progress has already been made in restructuring pharmaceuticals. Successful new product launches have given grounds for optimism, notably Levitra, Bayer's treatment for erectile. Also, major progress has been made in the area of cancer research. A raf kinase inhibitor for the treatment of advanced renal cell carcinoma, developed in collaboration with US company Onyx, has now entered phase III clinical trials.
Following the reorganisation, Bayer will have three operating subgroups: Bayer HealthCare, Bayer CropScience and Bayer MaterialScience. The three service companies will also remain within the Bayer Group. Growth will come primarily from products containing newly researched active ingredients, from the consumer healthcare business and from growth in Asia. However, contributions to value creation should be achieved by the Group-wide utilisation of technology platforms, nanotechnology and the expansion of biotechnology and genetic engineering.
Bayer Chemicals (excluding H.C. Starck and Wolff Walsrode) is to be combined with certain parts of the polymers business in a new company with the provisional name NewCo. This company is expected to be listed on the stock market under a new name by early 2005. As well as many of Bayer's less profitable chemicals operations, NewCo will also contain its API and pharma intermediates manufacturing business. As Wenning explained, NewCo will continue to manufacture ingredients and intermediates for Bayer. 'We have got to be careful that the existing process chains are not complicated,' he said. 'Bayer HealthCare will enter into agreements with NewCo regarding the relevant pharma ingredients and intermediates that it already makes for us.'
Among the businesses being transferred to NewCo will be the ZeTO organics plant at Leverkusen, and the Novochem plant in Murcia, Spain, which opened last year. It is likely that the separation of the manufacturing business from the pharma operations will lead to increased business from external clients, who will be less concerned about commercial confidentiality and potential conflicts of interest.
The project was announced just before Bayer's three-quarters financial results, deflecting some attention from its very poor figures. These included a year-on-year drop of 8.4% in sales, and a 98% fall in EBIT. Board of management member Klaus Kuehn blamed tough market conditions, particularly higher raw materials prices and energy costs. 'This is an entirely insufficient level of profitability,' he added.
Healthcare sales were up by 11% before portfolio and currency effects. However, in the next year the patent expires on the antibiotic Cipro (ciprofloxacin), though it is awaiting the outcome of an application for a six month extension from the FDA. 'Next year will be a difficult year for pharma,' said Wenning.