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Bayer's Generic Competition, Pipeline Setback Issues Remain

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We issued an updated research report on Bayer AG (BAYRY - Free Report) on May 28.

Bayer is facing generic threats/competition for many of its products including the Yaz franchise (oral contraceptives). The genericization of key drugs would negatively impact revenues. We expect the declining Yaz sales trend to persist. Continued weak performance of key drugs could impact the company’s top line and pull down the stock.

Bayer has a number of candidates in its pipeline and any adverse pipeline-related news has the potential to impact the stock adversely. In May 2016, Bayer announced the termination of a phase II study on Adempas in patients with pulmonary hypertension associated with idiopathic interstitial pneumonias. The decision followed the recommendation of an independent Data Monitoring Committee, which observed that patients dosed with Adempas were at a greater risk of death and other serious adverse events than those on the placebo arm.

In June 2017, Bayer announced that a phase II study evaluating its investigational oncology compound anetumab ravtansine (BAY 949343) as a monotherapy in patients with recurrent malignant pleural mesothelioma (MPM), who were previously treated, did not meet its primary endpoint of progression-free survival.

Bayer’s dependence on its pharmaceutical segment for growth remains a concern. 

Year to date, shares of the company have declined 5.1%, compared with the industry’s decline of 4.8%.

Nevertheless, Bayer is looking to acquire Monsanto in an all-cash transaction worth approximately $66 billion. The combined business is expected to boost Bayer’s Crop Science business and provide accretion to its core earnings from the first full year of the closing of the transaction (slated to close by second quarter of 2018), followed by double-digit percentage growth.

In October 2017, Bayer concluded an agreement to sell selected Crop Science businesses to BASF for €5.9 billion. The company intends to divest these assets as part of its strategy to complete the planned acquisition of Monsanto. Further, in April 2018, Bayer signed an agreement to sell further Crop Science businesses to BASF for up to €1.7 billion.

Zacks Rank & Stocks to Consider

Bayer has a Zacks Rank #4 (Sell).

Some better-ranked stocks from the same space are Illumina, Inc. (ILMN - Free Report) , Ligand Pharmaceuticals (LGND - Free Report) , and Enanta Pharmaceuticals, Inc. (ENTA - Free Report) . While Illumina sports a Zacks Rank #1 (Strong Buy), Ligand and  Enanta carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Illumina’s earnings per share estimates have moved up from $4.83 to $4.86 for 2018 and from $5.57 to $5.60 for 2019 over the past 30 days. The company delivered a positive earnings surprise in all the trailing four quarters with an average beat of 23.17%. The stock has rallied 21.9% so far this year.

Ligand’s earnings per share estimates have been revised upward from $3.91 to $4.37 for 2018 and from $4.61 to $4.98 for 2019 over the past 60 days. The company came up with a positive earnings surprise in all of the trailing four quarters with an average beat of 31.79%. The company’s shares have rallied 38.2% year to date.

Enanta’s earnings per share estimates have moved north from 86 cents to $2.97 for 2018 over the past 30 days. The company pulled off a positive surprise in three of the past four quarters with an average beat of 372.02%. The stock has soared 64.4% so far this year.


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