Ongoing Merger Effects Boost Q2 Sales, Profit at Bayer Schering Pharma

Leading German pharmaceutical player Bayer continues to impress, with second-quarter (Q2) figures released today indicating a 64.7% year-on-year (y/y) leap in net sales at Bayer HealthCare amounting to 3.7 billion euro (US$5.1 billion). This growth spurt was matched for the first half of the year, which saw Bayer HealthCare gain revenues of 7.3 billion euro. Key to Bayer HealthCare's fortunes was pharmaceuticals unit Bayer Schering Pharma, formed out of Bayer's takeover of Schering AG last year. Still riding high on the post-merger wave, Bayer Schering Pharma saw stellar sales growth of 117.4% y/y to 2.6 billion euro during the second quarter and to just over 5 billion euro for the first six months of the year. In spite of special items related to ongoing acquisition costs, both Bayer HealthCare and Bayer Schering Pharma managed to post double-digit gains in operating profit, with respective increases of 21.4% y/y and 30.2% y/y during the second quarter. Conversely, parent company Bayer AG saw a rise of just 4.6% y/y in second-quarter operating profit, reaching 917 million euro, although group sales increased by 22% y/y to 8.2 billion euro in the second quarter and by 22.4% y/y to 16.6 billion euro over the first half of 2007.

Sales within the Bayer Schering Pharma unit were split between a variety of therapeutic specialities, with the Primary Care franchise holding the bulk of sales at 766 million euro during the second quarter, up by just 1.7% y/y. Next in line in terms of sales was Women's Healthcare, boosted by Schering's successful contraceptives franchise (see below), which brought in 652 million euro in second-quarter revenue. Further down the line, Bayer Schering's Haematology/Cardiology products brought in 271 million euro during the quarter, while the Oncology franchise sold 188 million euro.

Outside of Bayer Schering Pharma, Bayer HealthCare's Consumer Health division increased by 6.1% y/y (or 9.6% y/y on a currency- and portfolio-adjusted basis) to 1.1 billion euro. Turnover was boosted by a strong performance in the Diabetes Care Division, which profited from the solid market take-up of new blood-glucose monitoring systems Ascensia Contour and Ascensia Breeze, new-generation replacements for the Ascensia Elite.

Schering products continue to dominate Bayer Schering Pharma's list of top-selling drugs, with multiple sclerosis treatment Betaferon/Betaseron accounting for 256 million euro in turnover during the second quarter and the Yasmin contraceptives franchise bringing in 250 million euro. However, while combined sales of Yasmin, YAZ and Yasminelle have risen by some 38.1% y/y when compared with Schering AG's second-quarter 2006 results, the Betaferon franchise has recorded comparative growth of just 2.8% y/y; a worrying sign for Bayer Schering Pharma's best-selling product as it approaches patent expiry by the end of the decade. While other products fared better, losses were also felt for respiratory antibiotic Avalox/Avelox (moxifloxacin HCI; down 5.3% y/y) and antibiotic cipro/Ciprobay (ciprofloxacin; down 26.8% y/y). Sales of diagnostics products formerly owned by Schering AG have also recorded contracting sales during the quarter.

One area of hope for Bayer Schering, however, lies in kidney-cancer treatment Nexavar (sorafenib), which has at last made it onto the company's list of best-selling products after just over a year on the market. Coming in at number 13, Nexavar's second-quarter sales grew by 160.9% y/y to reach 60 million euro, and saw a rise of 148.8% y/y to 107 million euro in turnover during the first six months of 2007. Bayer Schering submitted regulatory applications for the marketing approval of Nexavar in a new indication, liver cancer, at the end of June in both the United States and the European Union.

Outlook and Implications