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Bayer’s (BAYRY - Analyst Report) earnings per share during the fourth quarter of 2011 came in at €0.97 (approx $1.31) compared to €0.95 (approx. $1.29) in the year-ago period. Higher revenues boosted earnings. The Zacks Consensus Estimate hinted at earnings of $1.26.

The emerging markets performed well during the quarter. Prior year quarter earnings were hurt by net special charges of €954 million, while Bayer incurred net special charges of only €215 millionin the final quarter of 2011.

The company recorded a 2.0% growth in revenues, which amounted to €9,191 million. The improvement was primarily driven by the Consumer Health sub-division of the Healthcare segment and CropScience segment at Bayer.  

The three major segments: Healthcare, Material Science and Crop Science accounted for approximately 50.0%, 28.2% and 18.2%, respectively, of total revenues during the reported quarter. The Healthcare segment recorded revenues of €4,595 million in the fourth quarter of 2011, up 2.8%.

The HealthCare segment is further divided into two subgroups: Pharmaceuticals and Consumer Health. Sales in the Pharmaceutical segment increased 1%, driven by impressive sales in emerging markets and Japan. However, sales were weak in Europe and the US. The Consumer Health sub-segment also performed well with sales increasing 5%.

The CropScience segment performed well in the final quarter of 2011 with sales climbing 1.4%. The improvement was driven by higher volumes primarily at Crop Protection in Latin America.

The Material Science segment, which manufactures high-tech materials, exited 2011 on a disappointing note and delivered flat year-over-year sales of €2,596 million. Performance of the segment was impacted by high raw material costs.

Annual Results

For full year 2011, Bayer earned €4.83 (approx $6.70) compared to €4.19 (approx. $5.56) in 2010. The Zacks Consensus Estimate hinted at earnings of $6.42. 2011 revenues climbed 4.1% to €36,528 million. The Healthcare, Material Science and Crop Science segments accounted for approximately 47.0%, 29.7% and 19.9%, respectively, of total revenues in 2011.

2012 Projection

Apart from releasing 2011 financial results, Bayer also provided guidance for 2012.  Sales in 2012 are expected to come in at €37 billion. While the Healthcare and CropScience segments are expected to perform well, the MaterialScience segment is likely to be impacted by adverse market conditions. Earnings at Bayer are expected to improve slightly over 2011 levels.

Priority Review for Xarelto

In a separate development, Bayer and partner the Janssen Research and Development unit of Johnson & Johnson (JNJ - Analyst Report), announced that the US Food and Drug Administration (FDA) will review the marketing application of their blood thinner Xarelto for an additional indication on a priority basis.

The partners are looking to get Xarelto approved to reduce the risk of cardiovascular events in patients suffering from acute coronary syndrome (ACS). The supplemental new drug application was filed late last year. ACS refers to a heart disease, which results in the blockage of a coronary artery via a blood clot. Xarelto is already approved for some other indications including the lucrative stroke prevention in non-valvular atrial fibrillation (SPAF) indication.

Apart from SPAF, Xarelto is also approved for the treatment of deep vein thrombosis (DVT) in the EU (December 2011). DVT refers to the obstruction of a blood vessel, courtesy a blood clot. Furthermore, in July 2011, the  FDA cleared Xarelto for the prevention of DVT, which may cause pulmonary embolism in patients undergoing knee or hip replacement surgery.

We note that the US regulatory authority generally reviews those drugs on a priority basis which offer major advances in treating diseases that do not have adequate therapy. Applications for priority review designated drugs are reviewed by the FDA within six months of submission as against the usual ten months.

Our Recommendation

Currently, we have a long-term Neutral recommendation on Bayer, while in the short-run the stock carries a Zacks #4 Rank (Sell rating).

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