Bayer optimistic despite Cipro decline

Slimmed down, but buoyant: German major Bayer seems to be weathering its split from its commodity chemicals and plastics business well. With the lower-margin businesses now trading independently as Lanxess, the company is targeting sales of over €25billion for 2005, and is looking for a 20% improvement on earnings before interest and taxes (EBIT) for the coming year.

The company’s results for 2004, which include the Lanxess businesses and a blood plasma business which is to be divested, saw sales climb 4% to €29.8billion, with growth due mostly to strong demand for industrial products. EBIT increased 53% to €2.2billion, thanks to an overall recovery in the company’s business environment and the effects of cost-cutting programmes. ‘Overall,’ says the company’s statement, ‘the company more than offset the sharp rise in raw material costs, negative currency effects and the expiration of the US patent for Cipro.’ Sales of this leading antibiotic, Bayer’s biggest-earning healthcare product for the past few years, fell sharply, by €574million, and further declines are inevitable for the coming year.

Chairman Werner Wenning is satisfied with this performance. ‘While the general economic background was indeed favourable, this increase in profitability is still a remarkable achievement considering the challenges presented by the strength of the euro and the sharp rise in raw materials costs,’ he comments. The company also managed to reduce its net debt, despite paying some €400million for Roche’s over-the-counter (OTC) drugs division in December. ‘Our medium-term financial strategy remains focused on reducing net debt,’ says finance chief Klaus Kuhn.

Bayer’s pharmaceutical hopes rest largely on two compounds currently in late-stage clinical trials. One, a cancer drug , is in phase III trials for the treatment of kidney cancer, for which Bayer hopes to launch it in 2006. It also recently entered phase III testing for liver cancer, and a phase III study for skin cancer is set to begin shortly.

The other compound, an anti-clotting agent, has recently completed phase II trials for twice-daily administration against thrombosis; this will enable the company to begin a phase III study, but the results indicate the drug could be suitable for a single dose per day, which would make it a more convenient product for patients and, in business terms, highly competitive. ‘We believe that this way we can sustainably increase the product’s value,’ Wenning says: Bayer is predicting sales around €1billion per year for this product if trials are successful.

The company’s specialist plastics business, Bayer MaterialScience, saw the strongest recovery, with sales climbing 15% to €8.6billion and EBIT almost doubling, to €668million. This was mainly due to increasing demand for polycarbonates and polyurethanes.