Bayer’s Announced Acquisition Adds Needed Boost

Bayer’s BAYRY announced acquisition of Asklepios BioPharmaceuticals provides a needed boost to the firm’s drug pipeline in areas of unmet medical need. With the patent loss approaching for cardiovascular Xarelto as early as 2024 in some geographies, the acquisition helps to address the needed pipeline expansion. The acquisition also shows an increase in risk tolerance that Bayer needs in drug development, where conservative strategies don’t work well as payers tend to focus rewards on significant advancements in therapies. While the acquisition looks solid from a strategic perspective, we don’t expect any major changes to our fair value estimate, with the upfront $2 billion payment (followed by $2 billion potentially in milestone payments) largely offset by future potential new drug sales. Also, the increased focus on true innovation in the pipeline helps to reinforce our wide moat rating for the company.

The Asklepios acquisition should provide Bayer with a stronger entrenchment in cell and gene therapy with a focus on several rare diseases. Pipeline therapies targeting neuromuscular Pompe disease, neurological Parkinson’s disease, and congestive heart failure look the most advanced, with multiple mid-stage studies expected to read out over the next two years. The timing of these studies is important to set up Bayer with the needed next generation of drugs to address the patent expirations for Xarelto and the increasing competition on ophthalmology drug Eylea. Additionally, while the data is limited for several of Asklepios’ pipeline drugs, the firm’s drug development success has already been shown with out-licensed technology, including a license for the use of self-complementary DNA technology (scAAV) for the treatment of spinal muscular atrophy (SMA) to AveXis/Novartis.

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