Bayer holds its nerve as patent cliff approaches

As pressure builds on the German group to explain how it will replace expiring blockbusters, executives lay out a preference for early-stage collaborations and insist that they still have plenty of time.

If Bayer executives are worried about the patent cliff that their pharma unit is approaching, they are not letting on. At yesterday's annual results presentation management insisted that there was plenty of time to plug the gap that will be left when the blockbusters Xarelto and Eylea lose exclusivity, in four to five years’ time.

Bayer has made no secret of its desire to find new revenue streams externally and Stefan Oelrich, head of pharmaceuticals, made it clear that he favoured partnering over company takeouts. He also stated a preference for early-stage assets, a focus that might not comfort investors who would prefer to see the sales hole filled sooner rather than later.

Speaking to journalists after the company’s annual press conference in Leverkusen, Germany, Mr Oelrich said he would not exclude the possibility of takeover deals in the sub-$5bn ballpark, but that he preferred to avoid later-stage assets. 

“I prefer to go as early as possible, otherwise you are taking short cuts, and short cuts cost a lot of money,” he said. He pointed to Bayer’s “Leaps” initiative, which has seen the company invest €600m ($685m) in start-ups and collaborations over the past few years to access novel technologies. This is already paying off, he maintained. 

“There are already amazing advances being made, and we already own rights to some of these [assets], or have the possibility to take over the entire company. In pharma you can either take a short cut when your innovation is not good, and you buy something, or you do the basic footwork. And so far we’ve been extremely successful at doing this,” he said. 

Mr Oelrich contended that his ability to beef up pharma more quickly was in no way hampered by the costly Monsanto acquisition, which continues to burden Bayer with debt repayment obligations and expensive lawsuits. These protestations aside, it is hard to believe that the board would be willing or able to rubber-stamp substantial moves from its drugs arm right now. 

As such, it is hard to know the extent to which Bayer’s apparent preference for earlier-stage deals is financially motivated. The company continues to insist that it has plenty of time to restock its portfolio, and Mr Oelrich expressed confidence that deals and assets already in place would make a significant contribution.

All about oncology

One area in which Bayer is placing a lot of hope is oncology, where the launch of the Loxo asset Vitrakvi is under way and darolutamide is filed with regulators. The company claims to have a strengthening position in this space – but several of its blockbuster predictions look to be ambitious. 

Sales of darolutamide could reach $1bn, Bayer forecasts, though the company will have to work hard to make the most of the product’s relatively benign tolerability profile given that it is very late to this space (Asco-GU 2019 – Bayer and Orion have their work cut out with darolutamide, February 14, 2019).

Meanwhile, the company is sticking to its $1bn peak sales estimate for Xofigo; demand has already dipped for the radiopharmaceutical after its use was restricted by European regulators owing to safety concerns. Bayer bought full control of the product for $2.9bn in 2014 with the takeout of Algeta, a deal that perhaps provides an example of the type of expensive “short cut” that Mr Oelrich is keen to avoid.

While cancer seems a likely focus for deal-making, Mr Oelrich ruled out a move into immuno-oncology, admitting that the company had missed that boat. The same cannot be said for executives’ ambitions in cell and gene therapies, however.

“Bayer will be one of the leading cell and gene companies in the world,” the company’s head of innovation, Kemal Malik, told the press conference. To achieve this substantial funds will surely need to be deployed. 

Still, Mr Oelrich maintained that several existing Bayer assets here were already progressing more quickly than hoped. For example Bluerock, a joint venture with Versant Ventures, will push a stem cell-based therapy for Parkinson’s disease into clinical trials later this year. And Casabia, a joint venture with the gene editing company Crispr, hopes to apply to start trials of a project in an autoimmune condition next year, and plans to move forward in ophthalmology and cardiology.  

Towards the cliff: Bayer's key products
    Annual sales ($m)  
Product Description  2019e 2024e CAGR (2019-24)
Xarelto Oral anticoagulant 3,948 3,571 (2%)
Eylea Macular degeneration therapy 2,630 2,421 (2%)
Mirena Hormonal contraceptive 1,390 1,581 3%
Aspirin Cardio Blood thinner 651 723 2%
Darolutamide Prostate cancer therapy 50 681 69%
Vitrakvi NTRK-driven tumour therapy 72 615 54%
Aliqopa Lymphoma treatment  99 433 34%
Finerenone Diabetic kidney damage drug - 381 n/a
Xofigo Radiopharmaceutical (prostate cancer) 368 343 (1%)
Jivi Factor VIII replacement  91 337 30%
  Total pharma unit sales 17,894 18,275 (0.4%)
Source: EvaluatePharma.

Chairman Werner Baumann’s boast that in a decade Bayer will be one of the industry’s biggest cardiology players highlights another area where the company’s business development teams could look. With its huge Xarelto and blood pressure franchises the company is arguably already a heavyweight here, with a foothold worth defending, though Mr Oelrich declined to comment on Bayer’s interest in bigger moves – on companies like Amarin, for example. 

He pointed to finerenone as a potentially big future cardiovascular product. Bayer has again set a $1bn peak sales target; the next-generation mineralocorticoid receptor antagonist was designed to avoid the side effects of earlier iterations of this heart failure class (Diabetics could boost Daiichi's nascent heart asset, 26 September 2017).

Late-stage development of finerenone has focused on the overlapping field of diabetic kidney disease, an area of substantial unmet and growing need. This presumably gives Bayer the confidence to set such an ambitious sales goal as confirmatory data in this setting are not due until 2020. Two large studies, Figaro and Fidelio, are recruiting 12,000 patients in total, and should deliver a definitive answer on finerenone’s safety and effectiveness. 

“We haven’t seen any signals from the data safety monitoring board. These are huge studies, so I expect we would have already had signals if they were really relevant,” Mr Oerlich said. “There’s a good hypothesis why our type of mechanism of action will work, and now we have to wait.”

This seems to be the overriding message to investors concerned about growth of the company’s pharma unit: wait and see what our current pipeline can do. With a pledge to “access external innovation” but no apparent desire to make a big move, shareholders are being asked to believe that this fostering of early innovation will bear fruit. 

It still seems likely that, to guarantee that the Xarelto and Eylea holes are filled, late-stage projects will need to be brought in. Deal-making has stepped up across the sector this year. Perhaps this will persuade Bayer that it needs to make a more decisive move. 

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