By Christopher Alessi
LEVERKUSEN, Germany-- Bayer AG on Thursday posted 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 U.S.-based Merck & Co.'s over-the-counter
business, which Bayer acquired for $14.2 billion last year.
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 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
Chief Executive Marjin Dekkers continues to streamline the company
and shed noncore assets.
Bayer announced plans last September to shed its high-tech
plastics business through an initial public offering, which it
plans to float by 2016 at the latest, and refocus the group on its
health care and crop science businesses. Analysts have also
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, known as
Material Science, 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. Growth
in the OTC business was held back by weaker earnings in the animal
health and medical equipment divisions, the company said.
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. In addition to the Merck business, Bayer
acquired in 2014 Norwegian cancer drug maker Algeta ASA and China's
Dihon Pharmaceutical Group Ltd.
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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