Bayer Looks to Focus on Health Care Business --Update

By Dow Jones Business News, 

By Neetha Mahadevan

Bayer AG's forecast-beating profit Monday stemmed from robust demand for new drugs and a turnaround of its MaterialScience business, heightening speculation the plastics and chemicals business could be sold as part of a strategy to focus on health care.

The MaterialScience division, which has been plagued by high raw material costs, posted a 1% increase in first- quarter sales and a 79% jump in adjusted operating profit, due to higher volumes and lower costs that offset weaker prices and currency effects.

Equinet analyst Marietta Miemietz said: "It is too early to project a change in long-term trends while selling prices remain suppressed."

Nevertheless, speculation has intensified that Bayer could sell the division, which according to analysts is worth about EUR7.8 billion ($10.8 billion). That would help make way for a purchase of some over-the-counter consumer products of U.S. pharmaceuticals giant Merck & Co. Inc., a deal which would enable the company to strengthen its health care business.

A Bayer spokesman said a sale of the MaterialScience division isn't currently on the agenda, and declined to comment on a possible deal with Merck.

But traders and analysts say it is only a matter of time before a sale. WGZ Bank analyst Z. Ruezgar noted that a strong first quarter for the division means that Bayer can now get an adequate price for the unit.

"A potential purchase of Merck's consumer business [for $14 billion] could prove expensive, but if aligned with a disposal of MaterialScience, the new LifeScience business would be well received," Berenberg analyst Alistair Campbell said.

And such a move wouldn't be unprecedented, given an increasing number of deals in Europe's health care industry. Just last week, Valeant Pharmaceuticals International Inc. announced its offer to buy rival Allergan Inc., while Switzerland's Novartis AG sealed more than $20 billion in deals to sell and exchange businesses with GlaxoSmithKline PLC of the U.K. and Eli Lilly LLY & Co.

"In light of previous statements by Bayer that it aims for a number one position in Consumer Health, we would not be surprised to see the company pursue inorganic growth," Ms. Miemietz said.

Bayer has been strengthening its health care segment, bolting on Germany's Steigerwald and China'sDihon Pharmaceuticals. It also put up $2.86 billion for Norway's Algeta ASA, its partner on a new prostate cancer treatment.

The company's five new product launches, blood thinner Xarelto, cancer drugs Stivarga and Xofigo, eye treatment Eylea and pulmonary hypertension drug Adempas, are already reshaping the Aspirin maker's pharmaceuticals unit.

The key drugs registered combined sales of EUR598 million in the first-quarter, inching closer to Bayer's forecast of a combined annual sales potential of EUR7.5 billion. These drugs were largely responsible for the 2.9% rise in Bayer's health care revenue, which was dented by price pressure in Diabetes care.

The group's first-quarter net profit jumped 23% on the year to EUR1.42 billion ($1.96 billion) on a 2.8% rise in revenue to EUR10.56 billion from the same period a year ago despite unfavorable exchange rates as the euro strengthened against major currencies.

Bayer also confirmed its outlook for the full year.

Write to Neetha Mahadevan at

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