Encouraged by strong second quarter 2012 results, an upbeat
guidance and a series of positive subsequent developments, we are
) to Outperform from Neutral. Our long-term recommendation is in
line with the Zacks #1 Rank (Strong Buy rating) carried by the
stock in the short run.
Bayer performed impressively in the second quarter of 2012 driven
by increased revenues. Following the impressive results, management
raised their guidance for 2012 revenues as well as earnings.
The company's earnings in 2012 are expected to increase by 10% as
opposed to its previous guidance of slight improvement. Bayer now
expects 2012 sales in the range of €39 billion to €40 billion
(previous guidance: €37 billion).
Subsequently, Bayer has witnessed a series of positive developments
including progress regarding oncology candidate regorafenib and
label expansion efforts for Xarelto.
In August 2012, the HealthCare unit of Bayer submitted a new drug
application with the US Food and Drug Administration (FDA) for
regorafenib. Bayer is looking to get regorafenib approved for
treating patients suffering from metastatic and/or unresectable
gastrointestinal stromal tumors.
We note that Bayer is also seeking approval of regorafenib for
treating patients suffering from metastatic colorectal cancer
(mCRC). Regorafenib is being reviewed on a priority basis in the US
as well as Japan for the mCRC indication. Bayer is also seeking
European approval for the candidate for the indication.
We are pleased with Bayer and partner
Johnson & Johnson
) efforts to expand the label of blood thinner Xarelto.
Bayer/Johnson & Johnson made some progress in their label
expansion efforts when in September 2012 Johnson & Johnson
resubmitted its supplemental new drug application (sNDA) for
Xarelto for the reduction of the risk of secondary cardiovascular
events in patients suffering from acute coronary syndrome (ACS).
Moreover, Bayer/ Johnson & Johnson also resubmitted the sNDA
seeking approval to market Xarelto for reducing the risk of stent
thrombosis in ACS patients. Xarelto is already approved for
multiple indications. Approval of Xarelto for new indications would
further boost the sales potential of the drug.
Furthermore, in September 2012, Bayer's HealthCare unit
announced that it will purchase
Teva Pharmaceutical Industries Limited
) animal health business in the US for $145 million. The inclusion
of Teva's US animal health unit will not only add reproductive
hormones to Bayer's product portfolio, but also provide multiple
anti-infective solutions for treating infections in livestock to
Bayer's food animal unit. Following the completion of the deal in
2013, Bayer's companion animal unit will boast of dermatological,
pet wellness and nutraceutical offerings.
BAYER A G -ADR (BAYRY): Free Stock Analysis
JOHNSON & JOHNS (JNJ): Free Stock Analysis
TEVA PHARM ADR (TEVA): Free Stock Analysis
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In view of the series of positive developments, we believe that the
current price, which has significant scope for appreciation,
represents an attractive entry point for long-term investors.