{"id":11437,"date":"2016-09-15T07:19:55","date_gmt":"2016-09-15T07:19:55","guid":{"rendered":"http:\/\/www.biphoo.com\/bipnews\/?p=11437"},"modified":"2016-09-15T07:34:56","modified_gmt":"2016-09-15T07:34:56","slug":"drugs-take-backseat-to-seeds-at-bayer-with-monsanto-acquisition","status":"publish","type":"post","link":"https:\/\/www.biphoo.com\/bipnews\/business\/drugs-take-backseat-to-seeds-at-bayer-with-monsanto-acquisition.html","title":{"rendered":"Drugs Take Backseat to Seeds at Bayer With Monsanto Acquisition"},"content":{"rendered":"

Drugs Take Backseat to Seeds at Bayer With Monsanto Acquisition<\/span><\/strong><\/h2>\n

Drugs Take Backseat to Seeds at Bayer With Monsanto Acquisition<\/strong>:- In the wake of its $66 billion-acquisition of Monsanto Co., Bayer AG risks starving its lucrative drugs business of the resources it needs to grow.<\/span>
\nFunded with a combination of debt and equity, the deal announced Wednesday will transform Bayer into the world\u2019s biggest supplier of seeds and pesticides. It\u2019ll also leave the German company with little scope for acquisitions to boost its most profitable business: pharmaceuticals. That could hamper the unit\u2019s growth as patent expiry looms for its best-selling heart medicine.<\/span><\/p>\n

\u201cIt obviously becomes a different company now,\u201d said Andrea Williams, head of European equities at Royal London Asset Management Co., which manages 1.3 billion pounds ($1.7 billion) in European stocks, including Bayer shares. \u201cThe danger is the pipeline is somewhat empty, so they probably need to do some deals.\u201d<\/span>
\nBayer will largely rely on borrowed funds to pay for the deal, but says it\u2019s committed to maintaining its current credit rating in the long term. That combination means it\u2019ll need to focus on paying down debt, not doing more acquisitions to boost its pharmaceuticals and consumer-health businesses, Jefferies Group LLC analysts wrote in a report.<\/span><\/p>\n

The tack toward agriculture comes amid increasing pressure for global drugmakers. Thanks to sluggish economies and growing scrutiny on pharmaceutical prices, returns on research and development investments at major life-science companies were at their lowest last year since at least 2010, Deloitte LLP found in a study. <\/span>
\nEven as the market gets tougher, Bayer\u2019s pharmaceuticals have delivered profitability ahead of agriculture — a unit known as CropScience — in recent years. In the second quarter, pharmaceuticals accounted for about 35 percent of sales and 45 percent of earnings before interest, taxes, depreciation and amortization. Taken together, Bayer\u2019s consumer-health and pharmaceutical divisions form Germany\u2019s biggest drugmaker and rank among the top 10 in the world.<\/span><\/p>\n

To hang onto that position, Bayer has boosted spending on pharmaceutical research and development, which hit 17 percent of the unit\u2019s sales last quarter. The industry is also fed by acquisitions, however, especially when blockbuster medicines reach the end of their life cycle, as will happen to Bayer soon: its heart drug Xarelto loses patent protection in 2020. Companies rely on licensing as well as takeovers to catch up where their own in-house research has lagged.<\/span><\/p>\n

Deal Hurdles<\/span><\/strong><\/p>\n

For Bayer, one such area is cancer. In his previous position as strategy chief, Chief Executive Officer Werner Baumann told analysts last year the company\u2019s efforts weren\u2019t enough to satisfy its ambitions to fight cancer. Bayer is using partnerships to catch up in immuno-oncology, where Baumann said the company hadn\u2019t invested enough 10 to 15 years ago. Two years ago, Bayer spent $2.9 billion to buy Norway\u2019s Algeta ASA, adding a prostate cancer drug as well as technology to link radiation therapy with a biologic treatment. Deals in that size range could be harder to achieve in the future.<\/span><\/p>\n

\u201cThe hurdles would be very high,\u201d said Markus Manns, who helps oversee about 275 billion euros ($309 billion) in assets at Union Investment GmbH, one of Bayer\u2019s 15 biggest shareholders, in Frankfurt. \u201cWhile they might have the financial capacity, they probably won\u2019t have the management capacity to do another deal right away.\u201d<\/span><\/p>\n

Market Dominance<\/span><\/strong><\/p>\n

That\u2019s partly because the Monsanto transaction will probably face a lengthy antitrust review by regulators in the U.S. and Europe. Some European Parliament members have already started online petitions claiming the combined company would dominate the seed market. Bayer expects some of the two companies\u2019 businesses would need to be sold, a person familiar with the talks said before the deal was complete. Baumann said he expects to be able to close the transaction at the end of next year.<\/span><\/p>\n

Bayer could free up some financial firepower by selling off peripheral enterprises elsewhere in its life-science unit. The company is already working with JPMorgan Chase & Co. on a potential sale of its dermatology business, which could fetch more than 1 billion euros, people familiar with the matter said.<\/span><\/p>\n

At least one shareholder who had called on the company to do more to develop new drugs now says it makes sense to buy Monsanto. That\u2019s because Bayer will vault to the No. 1 spot in seeds, something it couldn\u2019t hope to do in the health-care industry with a deal the same size, said Joachim Kregel, who represents independent investors at the German shareholders association SdK.<\/span><\/p>\n

\u201cEven a takeover of the size of Monsanto wouldn\u2019t put Bayer in the same position,\u201d Kregel said. \u201cBayer won\u2019t be able to be in the top three in pharma.\u201d<\/span><\/p>\n

Source:http:\/\/www.bloomberg.com\/news\/articles\/2016-09-15\/drugs-take-backseat-to-seeds-at-bayer-with-monsanto-acquisition<\/span><\/p>\n

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