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Bayer Hurts from Generic Competition & Pipeline Setbacks

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We issued an update report on Bayer AG (BAYRY - Free Report) on Nov 22, 2018.

It is a life science company with core competencies in the areas of health care and agriculture.

Several pipeline and regulatory updates are expected from the company in the coming quarters.Any adverse pipeline related news can impact the stock unfavorably.

In August 2018, Bayer and partner Johnson and Johnson (JNJ - Free Report)  announced data from two late-stage studies, which demonstrated that blood thinner drug, Xarelto failed to show statistical benefits. These studies were being evaluated to expand the drug’s eligible patient population.

Data from the two phase III studies — MARINER and COMMANDER HF — showed no significant difference between Xarelto and placebo for the primary efficacy endpoints. The studies are part of Xarelto’s large clinical development program EXPLORER, which evaluates the potential of Xarelto in treating a wide range of critical medical conditions.

The company is currently facing generic competition for many of its products, including the Yaz franchise (oral contraceptives). This will negatively impact revenues of the company. Bayer’s dependence on its pharmaceutical segment for growth is a concern.

The company’s stock has declined 41.5% year to date, against the industry's growth of 9.9%.


However, Bayer has made several acquisitions and entered into a number of deals in the past few quarters to enhance its portfolio.

In June 2018, Bayer successfully completed the acquisition of Monsanto for $63 million. The combined business is expected to boost Bayer’s Crop Science business and provide accretion to its core earnings from the first year of the closing of the transaction, followed by double-digit percentage growth.

Bayer also expects annual earnings contribution of around $1.5 billion from synergies after three years of closing the transaction along with additional future benefits from integrated offerings. The Monsanto acquisition is a strategic move, which will offer Bayer a broad set of solutions to meet farmers’ current and future needs.

The company also received approval for few drugs, which bode well.

In August 2018, the FDA approved Jivi (BAY94-9027) for the routine prophylactic treatment of hemophilia A in previously-treated adults and adolescents aged 12 years or older in the United States. The FDA also approved Jivi for on-demand treatment and perioperative management of bleeding in the same population. Jivi is a long acting PEGylated recombinant human Factor VIII (rFVIII) replacement therapy.

In September 2018, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency recommended Jivi for marketing authorization for the treatment and prophylaxis of bleeding in previously-treated patients aged 12 years or older with hemophilia A.

In August 2018, the European Commission approved a new treatment approach for Eylea. The approach enables clinicians to combine proactive treatment with early extension of the injection interval for patients with neovascular age-related macular degeneration (nAMD). Bayer also has a robust pipeline. The company plans to launch at least 20 products by the end of 2023 and is already on track for the same. A potential approval of its pipeline candidates will boost sales of the company.

Zacks Rank & Stocks to Consider

Bayer is a Zacks Rank #5 (Strong Sell) stock.

Some better-ranked stocks worth considering are Bristol-Myers Squibb Company (BMY - Free Report) and Merck & Co. (MRK - Free Report) . While Bristol-Myers sports a Zacks Rank #1 (Strong Buy), Merck carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bristol-Myers’ earnings per share estimates have increased from $3.62 to $3.87 for 2018 and from $3.82 to $4.08 for 2019 over the past 60 days. The company delivered a positive earnings surprise in all of the trailing four quarters with average of 11.99%.

Merck’s earnings per share estimates have increased from $4.27 to $4.34 for 2018 and from $4.63 to $4.71 for 2019 over the past 60 days. The company delivered a positive earnings surprise in all of the trailing four quarters with average of 3.96%. Shares of the company have increased 36.1% year to date.

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