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Shares hit by Bayer results but pharma growth continues

A fourth-quarter 2016 dip in income hit the 2016 financial results of Germany’s Bayer (BAYN: DE), which have shown just how crucial the strong performance of pharma is to the group's revenue and profit, in particular its anticoagulant Xarelto (rivaroxaban).

Bayer dubbed it another record year for the company and one which was successful strategically and operationally – referring in particular to the $66 billion acquisition of the USA’s GMO giant Monsanto (NYSE: MON) – but markets were not initially convinced by the results as shares dropped by 2.5 % to 106.30 euros ($111.58) by Wednesday lunchtime.

Annual sales across the group increased by 1.5% to 46.77 billion euros ($49.15 billion) compared to 2015, with pharmaceuticals accounting for 16.42 billion euros of this, a rise of 7.3%.

The figure for earnings before interest, taxes, depreciation and amortization (EBITDA) was 11.3 billion euros, a rise of 10.2%, and for the pharmaceuticals division it was 5.25 billion euros, a 13.8% increase.

In terms of net income across the group, this was 4.53 billion euros, up 10.2%, and earnings per share (EPS) were up by 9.5% at 5.44 euros.

Major drop in quarterly income

For the fourth quarter, sales for the group were up by 4.7% compared to the same period of 2015 at 11.82 billion euros, ahead of the expectations of analysts, who had predicted a 3.4% rise.

The quarterly EBITDA figure rose by 13.7% to 2.18 billion euros, beating the average estimate of 2.09 billion euros in a Reuters poll of analysts.

But net income for the quarter plunged by 26.1% to 453 million euros and EPS decreased to 0.53 euros from 0.74 euros last year.

Despite the continuing good news in pharmaceuticals, factors such as competition and difficult market environments continue to put pressure on the consumer health, crop science and animal health divisions, and their revenue figures were either marginally up or slightly down on last year.

With concerns over how the cost of the Monsanto deal will affect the group’s overall operations, Bayer chief executive Werner Baumann stressed in a press conference on Wednesday that the acquisition will not affect its activities across other parts of the company such as its research and development (R&D) in pharma.

He added: “Based on the very good business performance, we significantly raised earnings in the pharmaceuticals division, while at the same time increasing our R&D spending by more than 300 million euros.”

Regarding the company’s 2017 guidance, Mr Baumann added: “For the group as a whole, we are planning to increase sales to more than 49 billion euros. This corresponds to a low to mid-digit percentage increase on a currency and portfolio-adjusted basis.

“We expect sales of pharmaceuticals to advance by a mid-single digit percentage to more than 17 billion euros. We plan to increase sales of our key growth products Xarelto, Eylea (aflibercept), Stivarga (regorafenib), Xofigo (radium Ra 223 dichloride) and Adempas (riocigut) to more than 6 billion euros.”

Xarelto a massive earner

With regards to sales of such products in 2016, the top seller for the year was Xarelto, which generated 2.93 billion euros in revenue over the year, a reported 30% rise on the 2015 total.

Eye medicine Eylea sales were 1.63 billion euros, a 32% jump, while next was an established product, the blood-clotting medicine Kogenate/Kovaltry (recombinant Factor VIII), which brought in 1.17 billion euros, a 1% rise.

Sales for the established Mirena (levonorgestrel) product family in women’s health totaled 1.04 billion euros, a 7.7% jump, and for older cancer drug Nexavar (sorafenib) they dipped by 2.5% to 870 million euros.

Betaferon/Betaseron (interferon beta-1b), a multiple sclerosis product, suffered a 10.9% decline in sales to 734 million euros, and the YAZ//Yasminelle line of oral contraceptives brought in a 4% lower figure, at 678 million euros for the year.

Newer cancer drugs Xofigo and Stivarga had contrasting fortunes with the former rising 28.8% to 331 million euros and the latter’s sales dropping by 12.1% to 275 million euros in a decline blamed on stronger competition in the USA.



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