Bayer pharmaceuticals head says there is no pipeline problem

LEVERKUSEN, Germany: Bayer is seeking to defend its pharmaceuticals business that will be diluted in importance by the takeover of Monsanto and faces a threat to revenues in 2024 when the blockbuster heart drug Xarelto loses its patent.

The firm's planned takeover of U.S. seeds group Monsanto for $63.5 billion has prompted concerns among some of the German group's shareholders, who say the drugs unit may not get the funding needed to deliver an adequate drugs pipeline.

The healthcare unit, covering pharmaceuticals and consumer health, now accounts for about two-thirds of Bayer's sales. In the combined group, its revenues will be roughly on par with those of seeds and pesticides.

Bayer's head of pharmaceuticals, fresh from a cancer drug deal worth up to $1.55 billion last week, said Bayer's drugs pipeline would keep the unit buoyant and could cope with losing Xarelto's patent protection in 2024.

"We have increased our R&D spend by more than a billion euros since I arrived and we have now more than 50 projects in clinical development. We don't have a pipeline problem," said Bayer's pharmaceuticals head, Dieter Weinand, who joined in 2014 after roles at Pfizer and Bristol-Myers Squibb.

Bayer, ranked No. 16 among global pharma companies by revenue, secured rights to co-develop two promising cancer treatments with Loxo Oncology last week.

But Weinand dampened expectations of further major deals.

"Buying additional pipeline would require additional funding for an even larger pipeline, which I don't actually need at the moment," he told Reuters, adding Bayer could seek smaller bolt-on takeovers or licensing deals.

Fund managers such as Jupiter Asset Management and Union Investment said last year Bayer risked neglecting its pharmaceuticals business by pursuing Monsanto.

Two fund managers, who hold Bayer shares but asked not to be named, said on Wednesday the Xarelto patent expiration was a challenge.

"I would like to see more moves to strengthen the pipeline, but the question is, will they be able to finance them?" said one, saying there was "a danger that the pharma unit will be underinvested".

Weinand said Bayer had proved it could maintain revenues, citing the firm's track record in seeing late-stage drugs to market maturity, such as Xarelto, which generates almost 20 percent of sales for Bayer's prescription drugs unit.

Some analysts are less confident about prospects.

"We're probably unlikely to see the same level of success going forward," said Berenberg analyst Alistair Campbell, describing Bayer's drugs pipeline as "still relatively empty."

Bayer said last year its six most promising drugs under development would have combined peak annual sales of at least 6 billion euros, a figure analysts called optimistic.

But progress has been mixed. Lymphoma drug copanlisip has won U.S. approval but anetumab ravtansine, a drug for asbestos-linked cancer type mesothelioma, failed the Phase II trial.

Weinand said there was still hope in the anetumab results as about a third of trial participants showed durable tumour shrinkage, and said Bayer aimed to find diagnostic tools to predict which patients were hopeful candidates before treatment.

The recent Compass trial showed Xarelto could treat people with severe atherosclerosis, potentially adding revenues now but leaving an even steeper drop when the patent ends.

Analysts on average see annual peak sales of between $5.5 billion and more than $6 billion before Xarelto goes off patent.

Weinand said Bayer was being "prudent" with a projection of more than 5 billion euros in sales in Xarelto's best year, up from 2.9 billion euros in 2016.

"What has changed that outlook is the really unique data on Compass that increased the revenue base at the time of loss of exclusivity. Now the gap has increased, but that's a great problem to have," he said.

(Reporting by Ludwig Burger and Patricia Weiss; Additional reporting by Simon Jessop in London; Editing by Edmund Blair)