Bayer Aktiengesellschaft (BAYN) Earnings Call Transcript & Summary

Good morning to those of you in the U.S. Good afternoon to those of you in Europe. It's my pleasure with my colleague, Dominic Lunn here, to welcome Bayer to the fireside chat within our health care conference. I'm pleased to say that we've got Stefan Oelrich, the CEO. We've got Axel Hamann, the CFO; and Christian Rommel in R&D. And we also have Juergen to keep us on the straight and narrow from IR. Dominic and I will ask questions. If anyone in the audience has any particular questions that you feel that we're missing out and wants asked. Do please e-mail either myself, [email protected] or my colleague, Dominic, [email protected] and we can make sure that those questions are asked.

And so with that, if I may start off, please, and ask a topical one on health care reform. Lots of people are asking for reactions from companies to what appears to be crystallizing from a Democrat point of view. A little bit of Part D reform, which we think would probably benefit Xarelto as a relatively cheap Part D product. Presumably, you'd get some benefit, but just your general views there, please.

Yes. I hope you can hear me, Jo. So thanks for having us. So yes, I think we'll have to see a little bit where this goes. And I would say that for us being a little bit underexposed, which is normally one of our headaches. In this case, it's a little bit more about Pro, both on Part B and Part D. Actually, on Part B, we're heavily underexposed. So the impact on our business, on our existing business, I think is while becoming more important than the future is somewhat limited. Where this is going to read out, ultimately, we'll have to see because the details are not finalized yet. And we'll have to see how this goes through the legislative process. So for really the granular assessment, I will need to have more impact. What I can say that just as a rule of thumb from what I've experienced in the past, that ultimately reform, hopefully, will also translate to improved volume access. We've seen this at the beginning of Obamacare when industry was really very much wondering what negative impact that could have, we've ultimately seen this manifest into increased volumes. So we'll have to see today. When you look at Medicare Part D today and our inability to support any type of patient support in terms of co-pay or what have you, certainly weighs heavily on use of some of -- especially of the -- of chronic medication. So I think we'll see pluses and minuses as always, with this type of reform and for the rest, we'll have to see.

Keeping on a same sort of geographic topic but moving to China. I wonder if you could just tell us a little bit about your experience with VBP there and how you see particularly the future of Xarelto moving forward.

The VBP, I must say, has been pretty much a learning expedition for all of us. We're now, I think, at the sixth round, having just been announced, I think, this week on some of the injectables, especially on the insulin. So we were hit on the second round with Glucobay. We had a pretty unique position there because we had some -- globally, some level of constraint on manufacturing volumes. And so there was an opening to play -- to do a volume play, which is what we did, taking a really steep discount to end up winning ultimately in the VBP. And then from there onwards, we've seen continued volume climbing back up, obviously, at overall lower levels. Since then, with the subsequent rounds that have happened, we've seen some companies taking different takes here on how to go into VBP. Many of them just going for the minimum rebate that is required to stay in the game. I think that makes especially a sense in such cases where you have a lot of potential competitors that take the price significantly down and then play along the different channels that exist. Chinese patients have great brand loyalty and we're seeing this -- we've seen this manifest in some of our competitors, especially in the cardiovascular area, be it in hypertension or cholesterol were also other areas like, for example, clopidogrel. So there is a way to make up for some of these losses, both -- especially on the volume side, even if you go in for the minimum discount. And so I think you have to play this depending on what the competitive landscape is, but there is life after VBP. I think this is what we're now seeing.

And if I just look at the one area where you are quite different from a number of your other -- your peers is the self-pay women's health care market in places like Latin America. As we exit COVID, what are your expectations for the growth of particularly the self-pay markets?

Well, again, this will depend by region. We're seeing our classic women's health care business, which also relies on oral contraceptive, which we have both in China and also in Latin America, and we continue to be strong, has not been affected really in the COVID on -- in any shape or form. You could even argue that it had some tailwinds there because long-acting contraception came under some distress because people would not go to the offices and would phone in prescriptions. And then oral contraception is obviously a wonderful alternative for these women. And we're leading in those areas in China and in Latin America. So I wouldn't necessarily see any difference there moving forward.

And then I'm going -- I'm going to hand over to Dominic now to ask a bit more about COVID.

Yes. So just in terms of the COVID recovery. So just wondering what you're seeing at the moment in terms of levels of diagnosis and patient screening. And then also just circling in, particularly on Vitrakvi and what you're seeing in terms of the level of screening that could lead to patients to Vitrakvi?

Okay. Let's get started with the COVID side. So again, it's a little bit business by business that we have to look at. We've -- fortunately, we've seen on some of the more chronic businesses like Xarelto, there was no impact, I would say. There was a positive impact with anticoagulation on COVID. So -- and we're maintaining this really good strong level also post. Let's say, as we get out of the height of the store because I think we can't say that we're out of the pandemic exactly. The ophthalmology business were back to normal. I think what helped us there greatly was that we had to treat and extend regimen and really strong evidence that has grown our market share in this area. We're now, for the first time, passing the 60% market share in the year with EYLEA, and that has materialized in significant growth opportunity coming out of the pandemic. Now market share hits demand, then that compounds growth, and that's what you've seen throughout this entire year basically on EYLEA. On the other 2 that were really impacted radiology, first, maybe. So radiology, you've seen in the second quarter and also the third quarter, a great comeback. And -- but I'm looking at -- without wanting to -- too much look into the future, but I'm looking at some of the waves that we're seeing here, for example, outside of my door in Berlin. Some of the clinics have now started to, again, ratio elective treatment, elective surgical treatments, and that will typically have an impact on our radiology business. So we'll have to see if that stays as strong as we've seen in quarter 2 and quarter 3 to come back, if that is sustained across the world. And then the last one is the women's health care. So our strongest women's health care business in long-active contraceptions in the U.S. We made a nice recovery in the second and the third quarter. But what we're seeing is that the overall demand is not 100% back. So my guess here is that some women have elected to go away from long-acting, so we'll have to win them back. So it's not -- because these are new starts. And whenever a woman gets a new long-acting contraceptive device, sort of IUD, then that is typically a new start and not necessarily a renewal of an existing Mirena or Kyleena or so. So here, we will have to probably claw ourselves back because I'm looking at the market share development where we're strong as well and came stronger out of the pandemic in the U.S. But the overall demand is not at the same level where it was before. So that seems to take more time. And I don't think that now this is pandemic-induced. We've just seen in the last 6 months, a slight shift in behavior here.

Okay. So if we turn to some more products then, if I start on Nubeqa, you've obviously got the ARASENS data that should be coming, I guess, any time in this quarter. Can you just frame that ARASENS opportunity? So one of the things we are thinking of is it's adding chemo to potentially earlier on in the treatment paradigm to patients who -- some patients die with prostate cancer instead of all it. So is that kind of path for clinical meaningfulness quite meaningfully higher than what would be the kind of statistical significance bar?

I'll let Christian say a few words on the trials and on ARASENS, if you want, Christian, maybe as to preface this. And I've said this many times that it's Jo's preferred question at our quarterly calls. So the launch is really progressing nicely. This has been exceeding our expectations even in the current situation that we were launching with a very limited sales force approach. We're also seeing that sales are not only progressing, while we're also now expanding geographically. I mentioned earlier this week that Germany is coming out strong. In China, we're really making great progress. So I hope that first quarter, we can further accelerate next year in China as we take the next milestones there in our launch progress. So we'll be ending this year in the $200 million to $250 million annual sales range. As I had previously -- I was talking about the Top 15, so I'll give you this more concrete number here. And so the product is doing fine. Physicians' perception of Nubeqa is extremely encouraging as well. We've learned from our market research that the -- there's really excellent efficacy and differentiated tolerability profile that we've shown in the ARAMIS trial is [indiscernible] in the perception of physicians in daily practice. So this is consistent across all markets. And Jo, I forgot to mention other than Germany and the U.S. and China, also Japan, is unusually strong out of the gate with Nubeqa. Actually, if I had the Japanese sales everywhere, probably I would be twice as high in the rest of the world. So that's where we stand. And I don't know, Christian, do you want to say a few words on ARASENS or do you want me to continue?

No, I'm happy to add a few things. So Dominic, you're right by defining the unmet need of metastatic hormone-sensitive. Nevertheless, I think we are, first of all, motivated to bring the patients any kind of options. Second is the impact we will see by the outcome of the data, then you referred to that you live and you may not die off, but you die with prostate cancer. Nevertheless, when you have cancer, you have cancer. So at least you have the option, and you have to really wait for the data. The additional benefit that we see from this is to position darolutamide as the #1 option for all kind of prostate cancer. It should be the best and first referred to track and we have the opportunity in front of us. And you can only achieve this by data. And I think it's a commitment to our mission that if there are patients that have the opportunity or the possibility to benefit from the combination that has never been tried in this patient population, then I think we have a commitment to that. We have a commitment to the patients, to our mission and to promote it as the #1 prostate cancer medicine in the androgen space. And I think we balloon on course here. So let's hope the data are good for the patients, and then I think it will make an impact on the brand.

Okay. Jo, back to you.

Can I just ask whether you're getting the same sort of pricing in the rest of Europe that you have in Germany? Clearly, your home market, you had a good review, you were able to set the price there. Are other countries looking at that as the price point to accept, do you think?

So I don't know, Axel, if you have that top of your head. I don't have the pricing on top of my head, but what I do know is that so far, we have had no real bad surprises on pricing in Europe.

I need to look that up. We'll get back to you, Jo, on the pricing of Nubeqa.

Let's move then to another product where Christian has given us some news today and that's the extension of vericiguat. So the VICTORIA study positions you in patients who've had an event and the VICTOR study takes you to another set of patients. I wonder if you could characterize the relative commercial opportunity between those 2 patient groups. And how quickly you think you should be able to get that incremental label onto your product?

Christian, can you elaborate a little bit on the trial on the label?

You go ahead and then bring me in as you see fit. I do have a few things to share, but why don't you start?

Okay. So listen, the Verquvo, and we said this, the Verquvo uptake is one that you need a little patience here. I certainly do need a little patience here because we knew that from an Axis perspective, this would be tedious, especially in the U.S. In Germany, we have the advantage of not going through the access hoops and then we're seeing very promising uptake already with our initial indication. And then I think if we want to be in the half rough market, if we want to be competitive, to extend our patient population just makes sense. And that should get us further ahead. We've guided to $1 billion plus with this product. This is going to make it certainly more probable to get to that fast. By the way, when I say $1 billion plus, that is shared with our partner at Merck. And I have not much more to say on commercial uptake. We should get the label of the study within the typical time frame than you would get label extensions. So normally, that is somewhere between 9 and 12 months, but maybe Christian can tell you a little bit more about that.

Yes. Jo, let me fill the gap then. When I talk to the investigators and our scientists, they are incredibly excited about Verquvo. And if you allow me to step back for a moment, then Verquvo is a really clever scientific idea because it acts on very validated and very relevant pathway, right? And this is nitric oxide synthesis. So it's just the relevant step independent of the NO to trigger a pathway that we all know benefits patients with heart failure. So it is -- it should be -- become the referred to [indiscernible] when you think about NO. Then you should take Verquvo. The challenge maybe that in the VICTORIA Trial was that we had a 10% reduction in the primary endpoint across all patient segments with worsening heart failure. However, when you look at the details and the circuit we're using for describing the stage of progression of heart failure patients was the NT-proBNP surrogate marker. And if you take the top quartile out, which patients really very, very sick, and you rarely see and you take the first 3 quartiles, then the primary composite endpoint was up to 27%. And I think I can say that other trucks that we know have not established these data points and that quality of impact. So Verquvo, and as expected, from whoever came up with the idea that the scientists are bear to go after the soluble guanylate cyclase as an entry point to extend or enhance the NO pathway at the level of which is biologically and clinic even as relevant as you can think of. So this works. So it works in the patient population with worsening heart failure. But the science, the underlying biology for the disease is relevant for patients that are not yet experiencing the worsening. So we're expanding the patient population, which is basically what we always do when we see a -- truck of this potential. We just talked about darolutamide. And you see this is our DNA at Bayer when we talk about this truck. So we -- and we can later on talk Phaneron. It's the same story. We see an opportunity. It's working, it's relevant, it's has strong science, and we're taking it now to the patients that haven't yet. They are heart failure patients, but they are not in the worsening, in the progressive phase. So we envision now to enroll 6,000 patients. It will take time, of course. But building on our experience and the confidence we have and the momentum we built, as I said, the scientists and physicians like the concept of going after NO. And we'll have to generate the data, but we are confident what we experienced in VICTORIA and bring this to VICTOR. Hopefully, I can always keep this apart by the way. It's these 2 names. You will help me guys. But I do think we have to do a better job and you give us a platform today to position vericiguat and Verquvo as a different -- and I think better way to engage with the NO pathway, which is one of the pathway, which you want to deal with patients at failure.

Can I perhaps ask the more commercial element. One of the things when we were looking at Entresto, which was obviously one of the first heart failure wants to come through. We found that the average patient was taking 9 of the medicines at the same time. And this is one of the areas of sort of the financial toxicity of having more than one brand. You've taken lots of generics, but when you have to start taking more expensive brands. Do you have a view as to what other brands you might kick out to bring this earlier in the pathway? And do you think that you ultimately need a survival benefit claim because you had reduced hospitalization, but as I understand that you didn't actually show increased survival at the end.

Well, I will let Christian again argue the science part. But the -- I think he mentioned to you on the survival. If you look at the -- what we did, we did study with Verquvo, very sick population. And if you look at the different degrees of -- in that population, we had different quartiles here. And in one of the groups, we had a primary composite endpoint that was up to 27%, which also had a clear survival benefit actually unmatched by anything that had been shown before. So when physicians look at the also total risk reduction that we're seeing with Verquvo, especially because we're talking about a high-risk population. And now we're reducing significantly the risk of the total risk reduction was something that was unbelievably strong. So we're getting a lot of positives on this talking about what you mean, the Entresto experience, I think -- I don't think that the Entresto launch curve was a little slow because they had to kick out other products. I think what we're seeing today is that -- and I could extend this observation to PCSK9 and to other cardiovascular drugs. So you could also use it to SGLT2 and they're used in heart failure. It's very, very slow. So really changing behavior of physicians, payers and ultimately, patients is something that has slowed down and changing. But when it comes to these fully medicated patients, you're absolutely right. But I don't know that it is so much about kicking something out because honestly, if you have already 1 or 2 branded products in the mix, probably in terms of co-pay or coinsurance or what have you in there, depending on which health systems were as a health system we're looking at, it probably doesn't make that much of a difference at that point. Even when you talk about Medicare-insured patients. So I'm -- I don't know if that's going to be the limiting factor. But what is good about Verquvo is we have all sorts of background therapy in our clinical population, including the SGLT2 background, including Entresto background. So it works alone, but it works also in combination with those. And again, let's not forget we've studied in our initial trial, a very sick group of patients that were suffering the most, where the need was the highest and got to some really remarkable total risk reductions here.

And let me add 3 things. One is for clarity. The primary efficacy endpoint is time-to-first event cardiovascular is for the VICTORIA trial. And we're going again in high numbers of 6,000 patients. Jo, the good news first about Verquvo is it's a very safe drug. So first, you have the option that you can combine. The safety profile in relation to the therapeutic impact is extremely favorable. And then let me champion this again coming from the science side is the SGLT2 inhibitors. We don't really know how they work, but they work well. But we don't know that be really precise molecular mechanism. We know how Entresto works and [indiscernible]. Here with Verquvo, we know it acts on an extremely relevant pathway. It is your NO pathway. So if we see that in the VICTORIA trial, an impact, an effect size on the hospitalization, as you referred to, but we also know that the relevance of the past years see we can go with that. And then, of course, in the time we're living in and give us your support, we will use real-world data evidence going forward.

Before Dominic moves to some of the early-stage research, I'm just going to ask them briefly about the Factor XI because we've got such a lot of news flow coming through from your Phase II program next year. So let's assume that, that comes through well. Can you give us some insights as to how you think you will have to design a Phase III. The Phase II is against placebo, presumably the Phase III would be an active study. And why do you think that this will end up being more efficacious than the current range of AF preventive drugs such as Xarelto?

Christian, do you want to take this?

So well, actually you -- I think if I share with you the details of the Phase III trial design, we would disappoint you almost because I don't think that's a platform to give those details away. You're right. We are excited about the next few months. As a matter of fact, very soon to roll in the first data of the 3 key trials of our Factor XI program for the oral first with the PACIFIC data. And then early next year, we expect -- so in AF and then stroke AMI to follow. And then as you know, it's a big program, which speaks to the commitment, which is based on this legacy here with the 2 parental molecules. Now the whole hypothesis, our strong commitment is that there is absolutely a need for more safe anticoagulant. And the Factor XI from the understanding of the science, and from human genetics, which is the best science we can access. The human genetics -- is a Factor XI is an entry point that provides the efficacy and gives you confidence and safety. And that, so far, by us and by others, has been so far -- has been proven the fair processes. So we believe that superior safety will be very important, and we believe it will bring the data forward. So I would invite you to think a little bit like Factor XI as PCKS9 kind of -- the kind of human genetic validation. And that's why we committed these 3 programs, 2 parentals, the antisense, the IONIS, an antibody for the end-stage renal disease situation, as you know, and [indiscernible] oral for, as I mentioned, AF, stroke and MI. And the data will come. What's impressive -- I was really impressed is that we stayed beyond on track. We accelerated the program. We were able, despite the pandemic, to accelerate the enrollment on all programs, by the way. So this has skewed us to the team. And when you are a leader in the space, how important that is to move those programs forward. So stay tuned, we're excited the data coming in now, and then we will make the wise decision. But if you see superiority and safety, we will go all in.

And I -- we're not going to ask about finerenone because I know that we're going to have the opportunity to dive into that. So at this point, I'm going to hand over to Dominic to look at some of the early stage stuff.

Yes. So if you could talk about gene therapy a bit. It was quite a big focus at the Capital Markets Day. Clearly, it's still quite early stage. But I was just wondering, are there any inherent advantages to the Bayer platform versus peers and when could we see some tangible evidence of that?

I'll let Christian chime in here as well. It is true that we've put a lot of focus lately on this. We do believe that this is an area where we could leverage some of the true advances in science in the best way possible. We started our investments with Nuro, which was originally one of our leads companies. So this was a company that we had helped to co-found. And when I look at -- from a regenerative medicine, with the help of induced-pluripotent stem cells outside of the oncology area, I think this is the leading platform. I'm not aware of anyone else that is as advanced as we are. We have a clinical program underway in Parkinson's that we aim to enroll fully for our Phase I by next month. And where we should see some -- I'm not saying some results, but we should see an effect or not by the end of next year of this medicine. We're advancing nicely on some other indications there in ophthalmology, where we can hopefully cure some sort or some forms of blindness in cardiology, we're making really some impressive progress preclinically on grafting cardiac cells on scar tissue. So you can imagine there are some completely different approach to treating people post myocardial infarction. So I think this is a platform that looks at -- has no precedent worldwide. We are lucky to have some really strong founders that are still fully involved into the company, be it in neuroscience, be it in cardiology. So that's the BlueRock play. And then we added, as you know, AskBio. AskBio is -- was cofounded by Jude Samulski. Jude Samulski was just voted. I saw -- I don't remember by who, but I didn't have any word on that. Was voted 1 of the 20 Top R&D transformative R&D people in the world. So he is basically pioneered AAV vectors and gene augmentation through those vectors. This is how Zolgensma came to life, same platform. This is how the advanced Pfizer program in Duchenne disease is -- in muscular dystrophy has made it through all our platform. And we have, I think, a total of 6 clinical programs right now there, ranging from pathway diseases where we're really making a big leap to be seen if that works in heart failure. And then Parkinson's with gene therapy, but also in monogenetic diseases such as Factor VIII replacement or things like Pompe disease. So a broad array of use and some of the best people in the business that work on our platform. I mentioned Jude is one, Kathy High. For those that know the area, she's a superstar in gene therapy. She brought Luxturna to market with Spark's. These people work on our platform, and we're extremely proud to have them. So I think it's a differentiated play. We're also adding more and more capabilities for editing, which I think is going to be key in the future, both on the call and also on the gene augmentation side so that you can also do the next generation of gene therapy. And the next generation of cell therapy, creating even more sophisticated cells. I don't know, Christian, if you want to add to it.

I just enjoyed really listening to you and it wasn't the first time, Stefan. Dominic, when Stefan highlights important -- the credible legendary leadership is so important because this is still, to some extent in an earlier phase, the gene therapy. And what you see now is a range of data and news, right? And if I can say this inflammatory, if you don't mind. Like Jude needed the 20 years before he could start a company so to say, right now, post our publisher paper nature and get funding towards gene therapy program. So we have to really watch and pay attention to details. The design of those studies as well as the details of -- it is the capsid design. It is the vector design. It is the promoter design, is the details of design, design, design. And we have the opportunity now being led by this by the cumulative knowledge and experience of people like [ Jordan Casey ]. That's why Stefan put so much weight on this. And totally a premium on this, and that's why I totally agree. In addition to this, you have to strategy, you go from monogenetic diseases and then you mix it with perhaps more systemic diseases, but we will learn along the way. And the 6 or 7 programs that such Stefan mentioned, I think they have the right order of priority, right, of single-gene defect versus where we see, based on our expertise in therapeutic areas where this can converge. And I think we should give each other here a shout-out that we're committing to Parkinson's disease with cell-based therapy, stem cell with BlueRock and gene therapy, because there's an unmet need. And if we don't do it, we have to do those things. So hold on, this is a long-term game. And then we mix it with this new technologies of genome editing and we advanced in next generation. But this is a bare innovation strategy, it's a vision and is a long-term game with the right portfolio with the right people in it.

Just very quickly before I pass back to Jo. You mentioned that you're doing 2 different approaches in Parkinson's. Is there anything fundamental that's changed in the understanding of the disease in recent years that makes -- is a more accessible target than it was, say, 5 to 10 years ago?

I think what has -- so why don't we first refer to what hasn't changed, and that is the unmet need hasn't changed and treatment option hasn't changed, right? That is the foundation of everything we talk about here. And what has changed is the access to -- and the courage to these technologies, right? We just didn't have access to creating an authentic neuron out of stem cells to produce and deliver document, right? We haven't had the access to a design principles of an AAV-based to deliver growth factors that may help to keep neurons alive or functional to do their job. So what hasn't changed is the unmet need. What hasn't changed is helping patients here. There's dismal progress of therapies for patients with progressive Parkinson's disease. And we converted this now with the technology. And I think we have courage to do it and we'll see. This is a tough game. This is, again, a learning loop long term. We'll have to generate the data and be on the way.

I know that we are very nearly out of time, but you've talked a lot about the excitement in the early-stage R&D, and you've got some really sort of serious scientists working for you that continually attract talent in. Can I just perhaps ask Axel to think a bit about how you attract talent in other areas. So is it -- do people want to come and work based in Berlin? Are you -- if I was the best commercial guy coming out of [ NSAID ] let's say, why would I think about coming in working for you? Rather than going and working, I don't know, AstraZeneca based in Cambridge or what is it that's attracting talent other than where I can understand where it's coming in, in the R&D.

Yes. I think, first of all, many people are inspired by our purpose, help for [indiscernible]. So when I'm talking to younger people applying or just joining the company, that's what they're referring to. And as you know, the younger generation is much more adept, much more keen on having a purpose when they get up in the morning than just financials. So that's what drives them. And as we have been very successful in positioning that purpose held for longer [indiscernible], that's what makes us attractive. Besides, I think you've mentioned Berlin or this [indiscernible], I think that is maybe a second priority. And we're getting more and more flexible on where people can support us. It's not necessary that they will relocate to Berlin. So a short answer is probably our purpose. And it's our excitement that we all share about our true north strategy. Stefan and [ Karsten ] has alluded to that. People are really getting goose bumps where we talk about possible parts in cure, and that's what drives them in applying with us.

No, no, that's okay.

I was going to say we -- I'm very aware of time and people have commitments to go on to other meetings at this conference. So on that happy note, with the positives of a much more emerging early-stage pipeline that we're going to hear much more about over the next couple of years, may I thank the entire Bayer team for being with us. If people have follow-up questions, things they don't understand, I'm sure we can pass that on to Juergen to get them answered. But otherwise, thank you very much, and we look forward to speaking to you in the new year. Many thanks.

Thanks, Jo, for having us.

Thanks, Jo and Dominic. Stay safe and healthy.