Bayer may finally be forced to split up its conglomerate, following earlier profit warnings and the recent withdrawal of Baycol. A spin-off will allow Bayer to focus on its chemicals operations, with Novartis, Merck, Sanofi and Roche potentially vying for the company's early stage pipeline, acclaimed as one of the strongest in the industry.
German chemical and pharma group Bayer, famous for inventing aspirin more than a century ago, saw its stock rise on Monday following claims from CEO Manfred Schneider that the company will not rule out a sale of its pharma unit. The news comes a week after Bayer's stock lost a fifth of its market value following the withdrawal of its third-best selling drug Baycol (Lipobay) from world markets.
Bayer has faced considerable financial pressure of late. Earlier in the year, the company announced 4000 job cuts and warned it expected a decline in full year earnings. Growth in the polymer division is expected to be hit by a weakening global economy and increased raw materials prices. In healthcare, Datamonitor analysis shows that operational margins are 8.5% lower than the 18 pharmaceutical companies' average of 23.3%. The Baycol withdrawal only served as a further blow, as sales of the drug accounted for 25% of Bayer's total healthcare sales. Baycol notched up sales of $557 million last year, and was expected to post an impressive $875 million this year.
Up to now, Bayer has resisted pressure to split the group, concentrating on achieving growth through in-house R&D and external agreements with specialist firms. Speculation is rife as to which two companies have approached Bayer and expressed interest in the pharma business. Novartis, Sanofi-Synthelabo, Merck and even Roche have been named as potential partners.
The Bayer group will be unable to secure a major merger or corporate agreement with a pharmaceutical company, owing to its organization and sheer number of businesses. Nevertheless, spinning Bayer's pharmaceutical interests off into an independent entity, in which Bayer would initially have a controlling equity stake, will greatly enhance its prospects.
Such a move would allow the parent company to concentrate on its expertise within the chemical and polymers business, currently characterized by higher margins. Meanwhile, the pharma business' strong early stage pipeline should prove an ideal complement to any of the potential partners above.