Bayer Aktiengesellschaft (BAYN) Earnings Call Transcript & Summary

Welcome to the Bayer presentation to the 43rd JPMorgan Healthcare Conference. I'm Richard Vosser, European pharma analyst with JPMorgan. It's my great pleasure to introduce the Head of the Pharma business, Stefan Oelrich, who will give us the presentation. Just a housekeeping ahead of that is when we get to the Q&A period, please either raise your hand or put questions in through the portal and we'll take your questions. Stefan, welcome to the conference.

Well, thank you, Richard. Good morning, ladies and gentlemen. Over the next few minutes, I look forward to giving you an update on where we stand on the strategic implementation of our road map for Bayer Pharma. It's been -- I'll jump over that. It's been quite the ride. I think I started presenting last year to you at this conference about our 3 strategic pillars mainly being -- consisting of replacing our top line, largely due to the fact that we're now in full swing with Loss of Exclusivity of Xarelto, and I'll give you a little bit of more color on this in a second, plus also our clear renovation of our pipeline, which is making tremendous advances at the same time. While we have a lot of moving pieces at Bayer, you read a lot about our operating model and the changes that we're putting in place, so all of this is happening in real time at the same time. But rest assured that for us, we have perfect clarity around our must-win battles and our strategic focus and we're diligently working on this. And I'm very proud to show that it's starting to also show in the numbers for this year. What was seen to be at the beginning of the year to be a very challenging year with Xarelto Loss of Exclusivity on April 1 in most geographies in the world, has turned into, first, an upgrade of our guidance in the summer. And then at the end of the third quarter, a commitment to come in at the top end of that upgraded guidance, which I continue to confirm even before we have read out or presented our fourth quarter results. In essence, that shows -- gives us growth for 2024. And I'll give you the detail where that growth is coming from. But it shows the impact that we're showing, especially from our launches with Nubeqa growing tremendously, having achieved blockbuster status with Kerendia showing strong growth. But also noteworthy to see that our base business is remaining very consistently stable with the radiology that continues to be a very pleasant surprise to all of us, radiology business where we're market-leading, but I'll go to those in a second. On the margin side, we continue to see margin compression largely linked to Xarelto erosion because there, we have a high gross margin with low SG&A cost attached to this. So this is something that we're fighting with very diligent cost measures across the board. We had guided in the midterm to margins going into around the mid-20s as we go through this transition. But all of this, as you're going to see, is going into really setting us up for growth once we come out of the Xarelto situation. When we look at the short to midterm of our portfolio, I think this picture that I had started showing at the Capital Markets Day is really gaining a lot of credibility with the proof points that we're setting throughout all of '24, and that being -- maybe to begin with, which is the less spectacular one is that our base business is extremely resilient, with $10-plus billion that we foresee to remain that resilient, given the strong performance that we're seeing on our radiology business. But we are also seeing renewed performance on our women's health care business, where we're really coming out of what I would call the COVID ditch where we had really seen decreased use of long-acting contraceptives, so that's coming back. But really noteworthy is what's happening on our launches. Our launches are overcompensating, for the time being, what we're losing with Xarelto, even though Xarelto has shown now in the third quarter of '24, minus '23. And so that's sort of like a harbinger for what you can expect in sequential quarters and that we will have to fight with our launch performance. We clearly see that once that effect is washed out that we're going to see strong growth coming out of Bayer Pharma as of '27 and in the following years, and I'll give you significantly more color to that in a second. One of the things that I had mentioned was a positive surprise to us was the results and now the subsequent label action that we've seen across the world for high dose of Eylea. And I've been asked by many people, so how are you doing? And then I've been a little cautious in showing too many numbers. But I can tell, these are 2 examples from typical markets that are high -- that are fast adopters for innovative products because they got good market access here in the examples of Japan and Switzerland. Not only do we continue to command a leading market share with above 60%, and you can see that this is very consistent, even slightly improving in the case of Switzerland, but you also see the strong penetration of our 8 milligram. And it, of course, gives me a special pleasure to show Switzerland, given that we have some of our competitors coming from there. So you can see that not only are we strong, continuing to show high single-digit growth in the third quarter, we think that this is a franchise that's going to continue giving in the next years to come with compensating through the 8-milligram launch, some of the adverse effects that we're going to be experiencing through the entry of biosimilar competition as of most probably next year. We're not doing this just with the data readouts of a higher dose but we're also going into difficult clinical settings. The QUASAR study that showed that this is a product that is best in its class, has the best label. We're now having across most geography availability of prefilled syringe, which competition doesn't have. We have the highest dosing interval, which competition doesn't have. So we're really poised for continued leadership in this place, and I think this graph shows it very nicely. Which leads me to probably our most successful launch to this date in the history of our company. We've now treated more than 100,000 patients with Nubeqa in our indicated use. We're leading in the marketplace. We've submitted for additional approval the ARANOTE data in all geographies, which is going to give us additional thrust with Nubeqa, which has been growing about 80% last year, which broke the $1 billion level in September and that we expect to come in at the end of the year roughly around $1.5 million (sic) [ $1.5 billion ] without wanting to disclose anything prior to disclosing our fourth quarter. So we're showing some tremendous growth. And with all the data readouts that we still expect over the next 3 to 4 years, we think that we have the potential to be the most widely used product in prostate cancer globally. So this is a product that continues to show extreme promise and we feel extremely strong about this. I think this is something that very few expected us to deliver. And I think we're really bringing in the proof points for one of the best cancer launches in recent history. So talking about launches. Kerendia is another one where I had guided markets for the last 3 years that this would be a slow uptick. It has been a slow uptick but we're reaching now $0.5 billion. And that based on our diabetic kidney disease indication, you will have seen that at ESC, we came in with really exciting data for heart failure patients. We studied a population that is not easy to treat in HFpEF. So those are -- there are very few therapeutic options here. And we studied an all-comer population, including SGLT2s as an underlying therapy. And I'm happy to -- for those that haven't seen the data, to say that not only do we have some really remarkable data that I think has the potential to be [ 1A ] guideline material. But if you also look at the subset of data on top of SGLT2s, there is even an additive effect between our unique, selective MRA antagonist and SGLT2. So I think we have the possibility to really alter the standard of care in heart failure, and that gives a completely different look and feel to this franchise. This is the promise that this substance class always held. We've proven that it works and not only that it works, but it's safe to use. And that the potassium sparing effect that you would expect from mineralocorticoid receptor antagonism is not clinically -- not a clinical hindrance to treating patients that are affected neither with kidney disease but most importantly with heart failure. So really tremendous perspective here beyond the already very encouraging news that we're seeing on the kidney. Which brings me to something that we feel strongly about what's happening this year in '25. Last year at this conference, I announced hot off the press a deal that we had done with BridgeBio on another form of heart failure with ATTR cardiomyopathy. You have seen that we have a positive CHMP opinion that we received in Europe. We've seen the launch now in the U.S. I think BridgeBio reported back first launch results yesterday at this conference. Very encouraging, which makes us believe that we have a potential class-leading product that certainly convinces with its efficacy. And when I think back at how people came out of ESC, also comparing this modality compared to others, I think we have reason to believe that we have a potential winner here that's going to be launch-ready at the end of the first quarter. Germany is most likely and Switzerland are the first markets that we're going to serve in Europe. It's certainly a fast-growing billion-plus type of market opportunity that we will address right where the sweet spot for us is so we use an existing infrastructure. We're ready to go from the get-go and we feel extremely strong about this. Also as we see that BridgeBio is getting off a really good start in the U.S. And then we have additionally also coming up for launch this year, elinzanetant. So this is the first-of-its-kind oral dual neurokinin-1,3 receptor antagonist. And I have to say that long because we often get thrown into the same bag with others that have entered the category. We believe that this is a different mechanism of action and helps us to be differentiated. We've seen now 4 consecutive strong Phase III readouts, the last one just happening a few days ago with our OASIS 4 program that studies patients -- breast cancer patients that display menopausal symptoms, very difficult to also study population, which essentially confirms the strong efficacy and also good safety that we've seen across the OASIS 1, 2, and 3 program. So this is an area, obviously, that not only addresses a tremendous unmet need. Two out of 3 women that suffer from menopausal symptoms do not get treated with hormones. And we believe that this is a tremendous opportunity and alternative to women that display symptoms. We've seen in our studies significant efficacy in treating hot flashes but also in terms of sleep quality and some other points there as well. So we're looking into this eyes wide open. It's not an easy market. I have personally been part of the launch of HRT because we have been a leader in this segment for over 100 years and have been also a leader for many, many years in the women's health care space in the United States. So we're looking at this eyes wide open. It's not an easy market but it's still a tremendous opportunity. Who, if not we, as market leaders in that space can unlock this opportunity? So feeling confident about that as well. So you can see if we just sum it all up, those are our must-win battles. Those are the things that all Bayer employees are laser focused on to get this right. And I hope you can see with me that over the past years and quarters, we have built up the credibility in our Pharmaceutical business that we can and that we will deliver. So we are ready to win on all of these battles. So that takes me to another point, which has been sort of like the sore point since I got back into this role here at Bayer was a very lackluster pipeline. You've seen that we've done quite a lot with relatively little on the late stage, mostly with really smart, I think, life cycle management and some good acquisitions like elinzanetant, which has led to, for us, a really tremendous success in Phase III readouts. Out of the last 9 Phase III readouts, we've had 8 positives. I think that's a really good track record. There has been, unfortunately, also 1 negative, which was not small. But I think we have credibly shown that from '27 onwards, once the Xarelto effect is washed out, that we have a credible case for growth. But it's not just the late-stage readouts. We've also completely revamped, over the last years, and I'm happy to welcome in a few minutes on stage with me also our Head of R&D, Christian Rommel. We've been able to really raise the bar to levels that at least in our company, we had not seen before. And when we say raising the bar, this came in multiple fashions. It was a focus on fewer therapeutic areas, but it was also an increase in the sort of like hurdles that we set ourselves and the bars that we set ourselves in terms of clinical efficacy, in terms of being first-in-class, best-in-class. And I'm really happy to report that we're not just displaying numbers and it's no longer a tick mark exercise where we pay our R&D people for advancing things through the different stage gates of clinical development, but it's really a question of how much we're going to make a difference in people's lives. And so when you go through them, and I could pick any of the examples that we have currently in our pipeline, you will see that these are highly sought targets like, for example, in most of our oncology pipeline, I'm just thinking of our chemoproteomics platform, Vividion that we acquired. I'm thinking of our cell and gene platforms that we acquired, that all 3 of them gave us a very impressive footprint in the U.S. and helped us to balance better between a very Germany-centric footprint that we had traditionally into a much more now global footprint between what we do in China, in Europe, and in the United States. So all of this is starting to show good momentum. And so I was thinking like which one could I showcase here? Should I go for the oncology stuff? Should I go for maybe our acute stroke program, where we have really a very exciting antibody and that's moving now into late-stage development? But then we had the good fortune to have a very good dialogue with FDA over the past year or so, which ultimately landed us RMAT designation for our bemdaneprocel program. For those that don't know what RMAT means, this is when you get sort of like recognized in these new modalities for incredibly advancing the science and potentially giving benefits to patients. And we're better than in Parkinson's. This is an underserved community of patients, more than 11 million in the world. I think by now, every one of us knows someone who is affected by Parkinson's disease. And the standard of care is incredibly low. We had started with a high-risk program with BlueRock in relatively few patients. And we saw not only incredibly good safety in our Phase I, but we also saw good signals for efficacy, especially in the high dose group. And together with the FDA, we came to the conclusion that it would be best for patients to directly jump into a Phase III setting. So we're getting ready to start a late-stage registrational trial in cell therapies. What convinced the FDA was not just our ability to show some level of efficacy in our Phase I, but what they also convinced them to move forward is our ability to produce and manufacture at scale this type of product, which is one of the biggest challenges in this type of modality. We have made investments at risk, and I'm glad to see that this seems to be going in the right direction. This is going to be a placebo or sham-controlled trial in -- that we do with around about 100 patients, and that we hope will be sufficient for registrational approval before the end of the decade. It's going to be an 18-month exposure at least to these patients. And we feel confident because we now have over 2 years of exposure from our Phase I, and these cells continue to be active and produce dopamine in patients' brains. Now as I was preparing for the conference, we got the good news also this morning that we've enrolled first patients in our gene therapy program, which also goes after moderate to severe Parkinson's patients. This is a completely different approach with the growth factor in the brain that's surgically inserted through a viral vector. And we'll, I think, give an equal amount of good hope to patients of there being something new, and we're also trying to accelerate to the highest degree possible that program. So you see we're taking risks, but we're taking them in areas of unmet need and of high value also to our shareholders. And it's starting to pay off, while at the same time, taking care of the here and today in our business. When I say we're taking care of the here and today, it's largely also managing our bottom line and making sure that we diligently manage cost. So our efficiency programs are paying off. We've been shifting our footprint like we had announced 5 years ago, but now this is in full swing with a strong presence in the U.S. We have built a strong commercial presence in the U.S., which is giving the results. Our biggest, fastest-growing region today is the United States of America, where we were under-indexed in the past. We're seeing, with what we call Dynamic Shared Ownership, that we're moving decision-making much more at the product level. We're creating -- we've created micro enterprises, we call them, that function very much like our biotech companies that we had managed in our so-called arm's length principle function. That means they have a financial frame over 3 years. And then the decision-making very much happens at the enterprise level and not in our functional hierarchies. And this is something that we're rolling out across the board. I can report that this not only gives us higher focus but also gives us probably better performing employees, more satisfied people, instead of running up the flagpole for decision-making, they are making it where it's most needed and gives us higher productivity while spending less. These are truly transformative changes in the way how we drive our business and translate into a superior top line growth and also strong profitability. So in closing, I think we're making tremendous progress on our agenda. Our 3 strategic priorities are delivering, both in renewing top line but most importantly also, really evolving a pipeline that was seemed to be interesting on the early side but that is now going -- getting late early, if I may say so. So it's good progress on all of those fronts because our launches are succeeding with Nubeqa, Kerendia, and Eylea 8 milligrams. It's because we have new launches in store with acoramidis and elinzanetant. By the way, I failed to mention we have the readout for asundexian and stroke prevention in the second half of this year, which potentially gives us a sixth opportunity here. And just think about this, a company that has been very much relying on 2 franchises, which were Xarelto and Eylea, is now gearing up to have 6 potential blockbuster growth drivers on top of that, given our size, I think, is a tremendous opportunity, and this is why we feel so strong about renewing growth as of '27. So all of this based on also continuing to advance our pipeline and to get all of these new assets in under the new operating model. And with that, I would like to conclude my remarks here, invite up Christian Rommel, our Head of R&D; and Olivier Mauroy, who is our CFO, and look forward to your questions, Richard, and to those in the audience. Thank you very much.

Any questions in the room? We do have one there in the middle, if you just wait for the microphone, hopefully, we can get to you.

Historically, you've talked about elinzanetant as being $1 billion-plus opportunity. Today, that was noticeably absent from your slide, and you described it as being a -- I mean, I can't remember the exact words, a challenging market and going in eyes wide open. Are you less confident in the potential of eli? Or how would you characterize the top line potential for elinzanetant?

First of all, thank you for asking the question because that allows me to make it very clear. We see this as a blockbuster candidate so that has not changed. And quite frankly, otherwise, we shouldn't be launching it. So that has not changed. But I think I mentioned it last year already. This is not a walk in the park because there is a clear understanding by physicians that HRT is an effective treatment. So we need to find the right place where this is acceptable both to women, which I think are more open to non-hormonals but also to physicians. And so 2 out of 3 women don't get HRT, but more than that, that suffer from symptoms. And so I think the -- so far, that unlock hasn't happened. And this is where we feel strongly about our knowledge in the market. We will be benefiting from others that have sort of like also set the scene a little bit. But we continue to be confident but we also know that this is not like in cardiovascular, where you have the data and sort of like the guideline will sort of like force the physician to prescribe this. There's a lot of education that will need to happen before that happens.

Stefan, just -- we got another question, but just to build on that, you had -- you mentioned the depth of the data in terms of 4 trials. Does that give you a -- does that help build the market from your perspective relative to the competition?

Well, first of all, I think that -- so we don't have direct comparison to the competition, so it's all indirect. But I think if you care to make the indirect comparisons, then this is a very strong set of data. And we believe that from what we see, the dual mechanism of action also potentially gives us an additional leg up over something that's only focused on hot flashes. So I think we have a differentiated profile. And now it's about really finding the right segmentation between where hormones go and where non-hormonals go. And I think this is -- when this class -- when the first product came to market, there was sort of like this belief, "Oh, this is going to replace all hormones." I think we're past that.

Take the question on the front.

Could you please add more color regarding Xarelto patent situation in different geographies?

Yes, sure. So this is a very mixed picture so it's going to take us a little longer. I don't know, Olivier, you want to take that one?

Yes, I can start. Thank you for the question. So Xarelto has been our biggest blockbuster so far. So indeed, for the past few months and even a few years, we have been losing some of the patent protection in different geographies, Canada, Japan recently, the U.K. as well. And it's starting to be a bit more impactful in Europe in particular now. So we still have our once-daily patent to protect us until 2026, but there are very different dynamics in the countries, especially in Europe, where we are sometimes entries at risk. Sometimes we win some first appeals or first injunction. Sometimes we lose as well. So it's very dynamic. It has been dynamic in 2024. We are still -- sorry, and it will be very volatile and dynamic in 2025 and even in 2026. I think that we've been doing a pretty good job at defending Xarelto in 2024. We will be continuously and vigorously defending our patent in '25 and '26, but you can expect a bit of volatility in this year as well in 2025.

Just to add to that, all of these launches that we're seeing, they're all at risk. So we feel that we have valid patents in place but these generic companies are launching at risk. We were surprised in some geographies that, that would happen. It has happened. We had, I think, in our guidance, cautiously included that. And when you look at the overall performance in '24, we're seeing that I think we anticipated the Xarelto situation quite well, are exceeding the guidance is also strongly built on our launch successes. So the Xarelto effect is going to go away, okay? So this is a question of, that's going to sort itself out over the next 24 months. And then I hope we can speak about other things.

A question?

Yes. I was actually wondering what your plans with TKIs, specifically regorafenib, future plans with that would be?

You want to take TKI, regorafenib? So this is a product that is losing exclusivity around the world. It's not really one of our focus areas right now. Actually, when I look at our oncology portfolio, I can think of other priorities that we're following. Maybe you want to add some color?