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Bayer has lost a lot of ground since its disastrous 2018 acquisition of Monsanto. Bill Anderson, who became chief executive in June, describes it as bogged down in litigation, bureaucracy and debt.
Yet the German conglomerate is making rapid moves in its pharma division. On Tuesday, it underlined its commitment to cell therapy by investing $250mn in a new production plant in Berkeley, California.
It is unusual to build production facilities for drugs that are still at an early stage of clinical trials. It is a measure of the importance of manufacturing in cell therapy, which involves the transfer of living cells to patients.
Bayer’s first potential drug is bemdaneprocel, designed to replace the dopamine-producing neurons that are lost in Parkinson’s disease. The results of an early stage trial were promising. A Phase 2 trial is due to begin next year.
There is as yet no cure for Parkinson’s, which leads to a progressive loss of motor function. A one-time treatment would be a valuable asset. But investors cannot ascribe much value to that yet. They are pinning their hopes on Asundexian, a blood thinner that can prevent strokes. This is in advanced clinical trials. It could fill some of the looming gap caused by the expiry of patents for anti-clotting medication Xarelto and eye medicine Eylea.
These patent expiries, declining farm incomes and a battery of legal claims — estimated at €9bn by Berenberg’s Sebastian Bray — weigh on Bayer shares. They trade on a ratio of enterprise value to ebitda of 7, over a tenth lower than the long-term average. That includes a conglomerate discount of 15 per cent.
There is a case for a break-up. Crop science is the largest part of the business and would work as a standalone. There is also a case for splitting off pharma, which would be worth about €33bn. The consumer health division has a value roughly half that.
That would raise questions about the independence of a business that is small by industry standards. However, as an incoming boss, Anderson has a licence to think the unthinkable.
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