Bayer Confirms Outlook as Q1 HealthCare Sales Rise 63.9% Y/Y

German heavyweight Bayer AG continued to benefit from the 2006 acquisition of Schering AG into the first quarter (Q1), with sales expanding by 22.7% year-on-year (y/y) to a total of 8.3 billion euro (US$11.3 billion). The rise in group turnover was boosted by an even stronger performance from the largest of Bayer's three subgroups, Bayer HealthCare, which saw a 63.9% y/y leap in sales on a reported basis, reaching some 3.6 billion euro. This massive increase is, of course, heavily influenced by the consolidation of drug sales from Schering, which Bayer HealthCare folded into its Pharmaceuticals unit last June, and the company has pointed out that adjusted for currency and portfolio effects, the HealthCare group's turnover actually rose by just 7.9% y/y. In spite of this, the first three months of 2007 were still able to see a 12% y/y rise in operating profit—expressed as earnings before interest and taxes (EBIT)—to 1.2 billion euro at group level, and an impressive 62.1% y/y rise to 624 million euro within Bayer HealthCare.

As expected, the rise in drug-related turnover was boosted largely by the recent arrivals from Schering AG. Former Schering products Betaferon/Betaseron (multiple sclerosis) and the Yasmin (drospirenone and ethinyl estradiol) family of contraceptives continue to dominate the top-seller list at Bayer Schering Pharma, bringing in 244 million euro and 240 million euro, respectively. Elsewhere in the Bayer Schering portfolio, however, performance was decidedly more mixed. Kogenate, Adalat, Avalaox and Ciprobay all saw a downturn in sales growth during the quarter, either at reported or comparable rates, with antibiotic Cipro/Ciprobay (ciprofloxacin) suffering a particularly large 18.2% y/y drop to 108 million euro in sales due to increased levels of generic competition. However, erectile dysfunction treatment Levitra (vardenafil) continued its strong performance over the quarter, with sales increasing by 14.7% y/y at currency-adjusted levels to 84 million euro. Meanwhile, kidney-cancer drug Nexavar (sorafenib) marked its one-year anniversary on the market by recording a 135% y/y leap to 47 million euro in turnover, which also contributed to Bayer Schering's overall upward sales growth.

Bayer HealthCare also continued to see a satisfactory performance from its Consumer Health division, which saw a 5.7% y/y increase (on a comparable basis) to 1.1 billion euro in sales. While y/y growth may be more modest than at Bayer Schering, the picture for most Consumer Health products was much more encouraging in terms of individual products, with only a few drugs such as Aspirin and Supradyn recording any slowdown in sales over the period.

Outlook and Implications

Bayer is sticking by the full-year financial guidance it first issued in March, meaning a 10% rise in group sales over 2007, or 5% if adjusted for currency and portfolio effects. Operating profit, measured as earnings before interest, taxation, depreciation and amortisation (EBITDA), is also expected to rise by approximately 10% y/y in 2007. The outlook for Bayer HealthCare is slightly more cautious, however, with Bayer saying that "we intend to grow with or faster than the market in all divisions and improve the underlying EBITDA margin toward 24%". Given that the company also says that it is not expecting any major changes in the performance of the global pharmaceutical market over the remainder of the year, it would appear that growth at Bayer HealthCare is expected to remain fairly static. The acquisition of Schering AG and subsequent creation of Bayer Schering Pharma has certainly expanded the revenues brought in under the auspices of Bayer HealthCare, and this is contributing towards such impressive sales growth figures in comparison with 2006. However, with top-seller Betaferon seeing only moderate sales growth as it approaches patent expiry, the future remains far from stable. Bayer is pinning its hopes on Nexavar, and the treatment's approval in various forms of cancer remains crucial to its ongoing success. Recent clinical trials have hinted at the drug's potential as a treatment for liver cancer (see Germany: 12 February 2007: Bayer Confirms Filing Plans as New Trials See Nexavar Extend Patient Survival in Advanced Liver Cancer Setting). Global Insight certainly see the drug playing an important role in the Bayer Schering portfolio, but it will be some years yet before Nexavar can compete with more established kidney-cancer products already on the market.