Bayer: Pharmaceutical R&D Day Highlights Key Long-Term Drivers

Bayer BAYRY hosted a pharmaceutical research and development presentation that did not impact our fair value estimate but provided more details around earlier-stage assets that will be important in fortifying the company’s wide moat. Additionally, the company largely reiterated peak annual sales potential for recently launched drugs and late-stage assets, including cancer drug Nubeqa (EUR 3 billion-plus), chronic kidney disease drug Kerendia (EUR 3 billion-plus), vasomotor treatment elinzanetant (EUR 1 billion-plus), and cardiometabolic drug asundexian (EUR 5 billion-plus). With the exception of the very well positioned Nubeqa, we remain skeptical of Bayer’s peak sales expectations, but even at lower expectations, we still view the company as undervalued. If key additional studies report positively for these drugs, we see upside to our sales projections and Bayer’s fair value. We are also encouraged by Kerendia tracking at a similar initial growth trajectory as Novartis’ older drug Entresto, which now generates close to $5 billion annually.

In the early-stage pipeline, Bayer is making strides in several areas, and we expect new CEO Bill Anderson to address the areas that need improvement. On the positive side, Bayer is largely targeting unmet medical need in areas like cancer, which is a shift from Bayer’s historical focus in women’s health and cardiovascular disease. Unmet medical need areas like cancer tend to hold better pricing power and the potential for drugs to move through clinical development more quickly. Also, Bayer’s focus in stem cells and gene therapies holds the potential to revolutionize diseases like Parkinson’s and several rare diseases where the market potential is very large given the lack of treatment options. Further, we expect Anderson to address Bayer’s historically slow progress and lower risk tolerance by moving the pipeline along at an accelerated pace, increasing the risk level that is needed to bring innovation to the market.