By Christopher Alessi
LEVERKUSEN, Germany--German pharmaceutical group Bayer AG
reiterated on Thursday plans to divest itself of its high-tech
plastics business, saying it would legally and economically
separate the Material Science division by the end of August.
"In the second half of this year, we intend to decide which of
the possible variations to select for the stock market
flotation--either an IPO or spin off" to shareholders, Chief
Executive Marijn Dekkers said. He added that the company had also
made decisions on "key management positions" for the future
plastics company.
The planned divestment is part of a concerted strategy shift by
Mr. Dekkers to streamline the company and refocus it on its core
health care and crop science businesses.
As part of that effort, Bayer acquired late year Merck &
Co.'s over-the-counter business for $14.2 billion. That
acquisition, along with Bayer's purchase last year of China's Dihon
Pharmaceutical Group Ltd., allowed it to surpass U.S.-based Johnson
& Johnson as the second place leader in the global OTC market,
Mr. Dekkers said.
With the Merck acquisition, Bayer, perhaps best known for its
trademark Aspirin, has added popular OTC brands like Claritin and
Coppertone to its portfolio.
Mr. Dekker's comments came as Bayer AG reported a 51% drop in
net profit for the fourth quarter of 2014, weighed down by higher
research and development and selling costs.
The German pharmaceutical group said net profit for the
three-month period ended Dec. 31 was EUR224 million ($254 million),
compared with EUR455 million a year earlier, missing analysts'
expectations. Analysts had predicted net profit to rise to EUR483
million, according to a poll by The Wall Street Journal.
Earnings before interest, taxes, depreciation and amortization
before special items rose 4.4%, to EUR1.85 billion, a result of
higher volumes in all business areas. Sales increased 12% to
EUR11.04 billion, helped in part by a weaker euro and the
consolidation of the Merck OTC business.
At EUR42.24 billion, total sales for 2014 met Bayer's updated
sales guidance of EUR42 billion. The company's five most recently
launched drugs--blood thinner Xarelto; eye treatment Eylea; cancer
drugs Stivarga and Xofigo; and pulmonary hypertension drug
Adempas--contributed EUR2.9 billion in sales for last year,
slightly ahead of the company's forecasts.
Bayer said it expects approximate sales of EUR46 billion in
2015, helped by favorable foreign-exchange conditions. It predicted
its new drugs would contribute close to EUR4 billion in sales for
this year.
But with drugs like Xarelto facing stiff competition from rivals
like Bristol-Myers Squibb and Pfizer, Inc., analysts and investors
have turned their attention to Bayer's mid-to-late stage
pharmaceutical pipeline. Some analysts doubt whether many of the
company's drugs that are in clinical testing could become
blockbuster sellers.
The results of phase two tests for five drugs will become
available over the next year, potentially allowing those products
to move into a third phase of testing, the final stage before a
drug is approved by regulatory authorities. Of those five phase two
drugs, two for chronic heart failure--finerenone and
vericiguat--are the "most promising," according to analysts at
Citigroup. Regarding phase three drugs, Citi analysts identified
only one, a prostate cancer treatment, as having significant
earnings potential.
Bayer's pipeline will likely prove increasingly important as Mr.
Dekkers continues to shed noncore assets and focus the company on
its life science businesses. Analysts have suggested that Bayer
could dispose of its diabetes monitoring equipment unit through a
direct sale.
Fourth quarter Ebitda before special items in the crop science
and health care businesses rose by 15.7% and 6.7%, respectively,
compared with the year prior. But the plastics business saw a 12.5%
decline in fourth quarter Ebitda before special items, hurt in part
by lower selling prices.
Bayer's fourth quarter experienced a "negative deviation based
on lower than expected" results in the plastics and OTC business
areas, according to Peter Spengler, an analyst at DZ Bank.
While Bayer increased net cash flow by 12.4% to EUR5.81 billion,
net debt rose by EUR12.9 billion to EUR19.6 billion, a result of
pricey acquisitions, including the Merck business, Dihon and
Norwegian cancer drug maker Algeta ASA.
Still, the company said it expected core earnings per share
growth to increase by a low-teens percentage in 2015, helped by
positive currency effects. Core earnings per share rose 7.3% to
EUR6.02 in 2014, in line with analysts' predictions.
Late Wednesday, Bayer said it would pay a dividend of EUR2.25 a
share for 2014, compared with EUR2.10 in 2013.
Write to Christopher Alessi at christopher.alessi@wsj.com
Access Investor Kit for Bayer AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=DE000BAY0017
Access Investor Kit for Bayer AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0727303028
Access Investor Kit for Johnson & Johnson
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US4781601046
Subscribe to WSJ: http://online.wsj.com?mod=djnwires