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Bayer Upped to Neutral - Analyst Blog

Posted: 12/20/2011 9:45:00 AM
Referenced Stocks: AF;BAYRY;EU;JNJ

We have upgraded our recommendation on Bayer ( BAYRY ) from Underperform to Neutral. Our target price on the stock is $61.00.

The US approval of blood thinner Xarelto for the highly lucrative atrial fibrillation ( AF ) indication in November 2011 is a huge positive for Bayer. We expect the product to perform well in the AF indication which is the most common form of cardiac rhythm disorder. Xarelto, which has blockbuster potential, has been co-developed with Johnson & Johnson ( JNJ ).

Strong sales of Xarelto, also approved in the US for the prevention of deep vein thrombosis (DVT) which may cause pulmonary embolism in patients undergoing knee or hip replacement surgery, should boost the top line significantly. The recent approval of the blood thinner for AF and DVT in the European Union ( EU ) should further strengthen the top line.

We are also impressed by Bayer's focus on emerging markets as they offer significant commercial potential. Emerging markets have been defined by Bayer as the Asia/Pacific region (excluding Japan, Australia and New Zealand), Latin America, Eastern Europe, Africa and the Middle East. Sales in these markets increased Bayer's sales by over 10% in the first nine months of 2011. Bayer's focus on these markets should drive growth in the upcoming quarters as well.

We are also encouraged by the potential of Bayer's late-stage candidates, alpharadin (prostrate cancer) and regorafenib (metastatic colorectal cancer). Both candidates have performed well in late-stage studies.

In September 2011, Bayer presented encouraging data from a late-stage study (ALSYMPCA), which revealed that treatment with alpharadin improved overall survival compared to placebo. Bayer intends to seek marketing approval for the candidate in the US and Europe in mid-2012 on the basis of data from the study.

In October 2011, Bayer presented encouraging data from a late-stage study (CORRECT) of regorafenib for metastatic colorectal cancer. The company is in discussions with the US and European regulatory authorities regarding the filing of marketing applications for regorafenib for the indication.

Moreover, Bayer continues to expect year-over-year earnings growth of 15% in 2011. Given these positive factors and the bright outlook provided by the company, we upgrade the stock to Neutral.

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