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

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