Bayer AG (OTCPK:BAYRY) JPMorgan Global Healthcare Conference Call January 10, 2012 2:30 PM ET
Jörg Reinhardt - CEO, Bayer Healthcare Division
Richard Vosser - JPMorgan
Richard Vosser - JPMorgan
Good morning. It’s still morning. I am Richard Vosser European Pharma analyst with JPMorgan. It is my pleasure this morning to introduce Bayer. From Bayer we have, Jörg Reinhardt, the CEO of the Healthcare Division with us today. Before I hand over to Jörg Reinhardt, I will just say that the breakout is in the [Georgian] room which is just down the corridor on the right hand side.
So good morning, everybody. Richard, thank you for the introduction. I would like to share a few slides on progress that we have made at Bayer in 2011 and we will also discuss a little bit, our way forward in our attempt to continue to build on the growth momentum that we have created over the last I would say 12 to 18 months. Obviously, you have read the disclaimer.
Now, when you look at Bayer Healthcare, most of you will know that we consist of four divisions. The biggest one is Pharma with 64% or actually two-thirds of our business. We have a strong consumer care business which is the number two globally in the OTC market with close to €3.5 billion in sales, it’s 20% of our business. Then we have a medical care business as we call it which consists of the number one fluid injection systems company which is MEDRAD here in the US and we are in the blood glucose meters at number four and we are also the number four company in the Animal Health Business which is 1.1 billion in turnover.
When we look at performance in 2011, so far these are the nine months data obviously. You see that the overall healthcare is at €12.5 billion which is a growth of 2% in local currencies mainly driven by a good growth of the consumer health business which is OTC, Animal Health and Medical Care together which have been growing by 6%.
When you look at Pharma, which is plus 1%. It’s more or less flat as compared to 2010. However, when you look at profit earnings, especially adjusted EBITDA, here the growth rates look significantly better. I mean Consumer Health is growing at 6% which is at the same rate than sales are growing. But Pharma did grow EBITDA at 9% which led to a significant margin improvement of around 2.7 percentage points in the first nine months of 2011.
So overall for 2011, I would say that we have made significant progress in those four areas which are important areas for us. Obviously pipeline, most important for a pharma company, we have made good significant progress with our late-stage products, actually better progress than what we would have expected. All of the projects did keep the timelines and some of them actually could be concluded or stopped early based on good results. I will come to that in a moment.
In addition to that we kept on building our early and our mid-stage pipeline which is not so visible at the moment, but I believe will evolve over the next two to three years. We made significant improvement in terms of our efficiency effort. We announced at the end of 2010 that we would start a savings and productivity improvement program. We are absolutely on track with that program. We had announced at that time that we would target around $430 million in annual savings, not all of that would drop to the bottom line. It’s also what we said. We will need significant parts of those savings to be reinvested in launches and in the pipeline. Nevertheless, as I mentioned before we could already this year improve our pharma margins significantly.
Third point, emerging markets for us, a very important aspect of our business. I will come to that in a moment. We continue to see good growth double-digit also in the first nine months and we keep on expanding our especially commercial presence in marketing and sales organizations.
Last, but not least Consumer Health, another strong year in 2011, the first nine months we could see 6% growth. Here we have now in the meantime 13 brands that have all sales of more than 100 million which is considered to be a significant brand in Consumer Health.
Now of course there are challenges and I have summarized those that are most important for us in 2011 and to some extent also 2012 on this chart. On the left hand, obvious issues, generic competition and healthcare reforms, everybody is dealing with that. For us generic competition has some specific aspects. As some of you know, we lost patent on YAZ, our oral contraception franchise in the US in 2010 and we had significant hit now on top and bottom line in 2011. We lost during 2011, the patents on YAZ and Yasmin for Europe and we will see significant impact in 2012.
Now, having said that this is the only franchise which has new exposure in terms of generic competition. Everything else is going to be stable and we don’t expect any further generic competition to our franchises going forward in the next few years.
Overall for the women’s health franchise, I would say that we will see in 2011 that is according to our projections which is a single-digit decline. We believe that going forward in the US the business should be stable in 2012. We will see a hit in Europe as we indicated earlier, but we also see a significant growth of that franchise still in other parts of the world especially in Latin America and in Asia.
So overall, we may see a continued single-digit decline for that franchise. Healthcare reforms expected to have an impact of close to $300 million in 2011 which overall led to a growth of the Pharma business as we have been guiding so far at very, very low single-digit level. Essentially, we expect the Pharma business to be flat.
Now that's one part of the equation. The other one is that we have a good problem to have in a sense, there are significant investment requirements in our late stage pipeline. I mean I’ve mentioned before that we have a range of products that are at very late stage and need to be launched now which means also investment need for market introductions in 2012 and 2013.
We have a very good business in emerging markets which we want to continue to grow which means investments as well and we want to build our strong position in Consumer Health where we have a range of brands that can still be rolled out in other parts of the world. So again means investment, all of that we would like to achieve by to a large extent by productivity improvements that we can do internally and by shifting of resources from one part of the business to the other.
So for example we have been shifting and will also in 2012, significant parts of our field force capacity out of our women’s health franchises which are under significant pressure, especially in Europe and shift these resources into the cardiovascular arena where we need them to adequately support Xarelto.
Now, I would like to address four different topics in the next few minutes. One, our pharma pipeline which I believe is long aspect of the Bayer story. Second strong aspect is our presence in the emerging markets. Third which is not so clear to many of you may be is our strength in the consumer care business and fourth, I would like to talk a little about a newly created business in our medical care division which is the radiology and interventional business which I believe is attractive and will create some fresh air to that area.
First pipeline, I have listed here our major late stage programs, which as you can see are mainly in three areas cardiology, oncology and ophthalmology. I will talk more in detail on Xarelto.
Riociguat is a product that saw some delay in 2010 for pulmonary hypertension. We accelerated the program again in ’11 and we are now expecting to report on the Phase III program for Riociguat by the middle of this year.
Nexava as you know a number of Phase III programs ongoing which we will read out in the next six months.
Regorafenib, very positive data as a consequence of the colorectal trial that has been ongoing for now 18 months.
Alpharadin, I will for waiting that come to that in more detail and also to VEGF Trap-Eye.
Xarelto; overall a very comprehensive clinical program with more than 75,000 patients by now. We did one actually nine Phase III programs and all of them showed positive efficacy results. All of them met their primary efficacy endpoints, be it in prophylaxis of deep vein thrombosis, be it in treatment of deep vein thrombosis, be it in atrial fibrillation, be it in ACS and even in medically ill patients, it could meet the primary efficacy endpoints.
Now that has led to a launch of this product now in more than 85 countries and also as you know, the approval in the U.S. and in Europe for SPAF and in addition in Europe also for these deep vein thrombosis treatment.
We got a special bonus last year also with the positive data in ACS where we showed more than 30% mortality benefit, which obviously gives us a significant benefit and that indication we’ve filed for ACS in Europe and in the U.S. before the end of last year and we would hope that during 2012, we get approval in that indication as well.
What is still ongoing is the EINSTEIN-PE extension program where we do expect some news flow in the first six months of this year.
So we have been guiding for more than two billion peal sales for Xarelto and we still more than ever stick to this guidance. We believe that it will come from different parts of the overall market. On the left hand, you see the current market size, which is around $9 billion. Our expectation is that could almost double over the next 10 years, to some extent based on additional patient populations that can be generated with the new, much better tolerable oral coagulants. Obviously pricing plays a role here as well.
On the right hand you see, patient treatment days for the different indications that may actually change over time as well but it’s the current situation.
Obviously, atrial fibrillation is the largest indication. But also post ACS, VTE treatment or other primary prevention are significant indications and we believe that we, at the end of the day, may be the only program in this field of oral anticoagulants that can play in all of these indications.
Second product I want to comment on is Trap-Eye, a product that we developed together with Regeneron. We two have exclusive retention outside of the US. Again a program which met all of its efficiency end points in the Four Phase III studies that we have been doing jointly with Regeneron in AMD but also in Central Retinal Vein Occlusion.
The product has been submitted for marketing approval in the EU and also in Japan last year and we would expect approval for our territories in Japan, probably in the first half of this year and in Europe in the second half. We will file for CRVO later in 2012 as we indicated before and we have started our Phase III program in DME and we have also a program ongoing in CNV.
Altogether we believe that this is a good opportunity for us not only in Japan where Avastin use is essentially zero but also in countries like China where there is a growing need and that's why we started our Phase III program for AMD just recently which needs to be a special program for China.
In the oncology field we had two positive surprises in 2011, one was Alpharadin and my old friend Andrew Kay is going to talk more about Algeta and Alpharadin, I believe later in the meeting.
We have to say that we are extremely happy with the results that have been generated with this product. It’s not only highly efficacious with an overall survival benefit of 44% in this late stage prostate cancer population but it’s also very well tolerated. And the reason for that is that it is very targeted in its activity. It actually seeks the bone. It’s got and established in the bone metastasis. It has very short range in variation, which leads to very good tolerability and very targeted efficacy, which leads to excellent results in this late stage population as you can see here.
We obviously intend to develop this product also in other indications. Some of you may have heard that there are positive biomarker data out of press consultations. We will continue to explore that indication later in 2012, together with the product program, once we have enough material actually to be able to do so. Filing is targeted for the mid of this year and we stick to that filing date. And the FDA has granted fast track space.
Second positive surprise was the Regorafenib Phase III result in colorectal cancer. It is third line colorectal cancer. Again we saw a significant overall survival benefit. Data will be generated next week at the ASCO-GI meeting here in San Francisco.
Regorafenib is an interesting product because it is a multikinase inhibitor, which is a little bit you could almost call a dirty drug because it inhibits so many different kinases but that also means that it has significant potential among a broad range of indications, which we will have to explore and we will explore later this year. We are currently finalizing together with Onyx, our lifecycle management plans in a sense and we will be able to tell you later this year what exactly we will do here.
There is another phase III program ongoing already now in third line GIST, which we expect to come to a conclusion in the first half of this year and we hope that that data obviously will also be positive.
So altogether, we have four very late stage programs where we have completed our Phase III programs or at least the first step. So that’s why we have been guiding to more than 2 billion peak sales, VEGF Trap-Eye, I believe in all indications, not just AMD. If you add the other indications, CRVO we have shown positive data, DME and myopic CNV we expect this product for our share of it to be bigger than €1 billion.
Alpharadin, obviously, not only in late-stage prostrate cancer patients, but potentially also in breast and other indications could be more than $1 billion product and Regorafenib in the range of cancers as well.
This is just a late stage pipeline. Behind that, we have been developing products in Phase I and Phase II especially in the Oncology and Cardiovascular field, and probably the most important, lets call it next generation product that we will report on is Riociguat in pulmonary hypertension where we have two Phase III programs ongoing, which will be completed by the mid of this year as I indicated earlier.
So the strong pipeline is one part of the -- one pillar of the Bayer story. The second one is our excellent presence in emerging markets. As you can see here, 32% of our business is already now in emerging markets which is at the same level that our business in Europe for example. And we’re growing in these economies with 11% whereas we have a slight decline of 1% in Western Europe.
So it’s only a matter of time that these emerging economies are going to be our most important area to do business in. And that is in areas and in countries which keep on growing or expected to grow the next five to six years significantly. When you look at the right hand, we are strong in Asia. We’re strong in Latin America with growth rates that are double digit or very close to double digit.
We are particularly proud of our performance in China where we are top five company with 24% growth in the first nine months of this year; mainly driven by pharmaceuticals and you see on the bottom left part the portfolio that we have in this country and you see the growth rates. Obviously, primarily a primary care portfolio that has been doing very well over the last five-six years and is expected to do well over the next five-six years as well.
You’ll see also Nexavar there which is of course not a primary care product, but the other products that we will continue to rollout also in the more rural areas of China where we are currently not that strong. We are strong in the Southern part, in Shanghai, and Beijing in the Northern part, but not in the Western part and that's why we keep on adding capacities there. We have been adding 1,000 people last year, 1,000 of sales reps just for this piece of China and we will continue to invest in sales representatives also this year and will again significantly grow our field force there.
But it’s not the only part, we obviously also invest in China in research and development. We have established a global center there and we have moved our primary care global responsibility out of Berlin in Germany to Beijing which was a courageous move I would say, but its really paying off because its energizing for our colleagues to work out off a country which is so strong in primary care and work out of an economy that is so booming and positive and forward-looking. So this was really a positive move.
Altogether, we’ll lead in China to expectations that over the next five years actually we might be close to triple our sales of 2010 to €2.5 billion by 2015. Reason for that optimism is that the macro factors in China are still strong and still very positive. The government is obviously very much committed to increase healthcare funding. We have a growing and ageing population in all the other aspects. I don’t think there will be a change to be seen in the next five years or so.
Third part of the Bayer story after pipeline and emerging markets is our strong business in OTC and consumer care. There you see on this chart that we have been growing over the last six-seven years very nicely. We did outperform the market in this segment over the last 10 years almost continuously. And also in the first nine months of this year with 8% growth, we have shown significantly stronger growth than what the market did.
Globally, a number two position, also build through a number of acquisitions over the last few years. So for example, we acquired the Roche OTC business, but also acquisitions in emerging markets like Sagmel acquisition and Topsun acquisition in China.
When you look at our brands in this business, mainly focused on three areas in OTC, one is pain, with Aspirin and Aleve, one is dermatology with Bepanthen and Canesten and the other one is vitamins with One A Day and Supradyn. Now Aspirin is more than 100 years old, off Parkinson’s 85 years or so still dong reasonably strong with a double digit growth of 10%. Bepanthen is not quiet as old. It is only sixty years old, but still also growing 8%. So these brands once they are established they are really good business. And Bepanthen for example is a brand that’s not even rolled out across the whole world. There are quite a number of countries where we don’t have it yet and we will push it into these remaining markets as well.
The fourth story that I wanted to briefly tell is regarding our Radiology and Interventional business. This is something which is evolving a little bit, not so well known. I mentioned before that we combined our MEDRAD business which is number one player in fluid injection systems for contrast media, together with our Diagnostic Imaging business, which is a clear market leader in contrast media.
We combined these two businesses. We believe there is significant potential for top line synergies, also some bottom line but mainly top line. What is also a part of this business is our Interventional business which many of you will probably never had heard anything about, where we keep on investing in smaller companies that get us into the endovascular device business.
We have been making two acquisitions recently; one of Possis which got us into thrombectomy business, one of Pathway which got us in the atherectomy business, which are areas which I believe will see significant growth over the next 10 years, and something which I would like to build consecutively and continuously in the context of this new division.
Which gets me to the summary; I hope I could demonstrate that we are extremely committed to build our growth momentum, to build on our growth momentum in healthcare also in the next few years. We have the opportunity with four potential blockbuster products to be launched within the next 12 to 18 months. We have a strong development pipeline, not only late stage but it’s also evolving in earlier stages.
Our position in emerging markets is stronger than most of the other players in pharma. And we have a consumer health business that keeps on growing above the market and will hopefully continue to do so.
Thank you very much for your attention.