Skip to main content
Premium Trial:

Request an Annual Quote

FEATURE: Will Bayer s Woes Intensify its Current Bioinformatics and Genomic Deals?

NEW YORK, Aug. 16 – Bayer’s recent announcement that it would consider merging its drug division even if it meant losing control of the business came as a surprise to many analysts who thought that Bayer, beset by plunging profits and a major drug recall, would seek a merger on the condition that it maintained management control.

The announcement, made by CEO Manfred Schneider at a news conference in Germany on Monday, would affect only Bayer’s pharmaceutical business, which is one of four units the company operates. But a merger that results in a change in ownership might also impact the dozen or so deals Bayer has with bioinformatics and genomic companies, analysts and industry insiders said.


Today, most analysts agree that the future of Bayer’s pharmaceutical group is murky, especially after the recall last week of its cholesterol drug Baycol, which was linked to patient deaths in the United States and Europe. The drug, known as Lipobay outside the United States, was Bayer’s third-best-selling drug and was supposed to be the engine that drove future growth.

The recall, together with a battered share price, a 45 percent drop in quarterly operating profits, a growing queue of lawsuits, and plans to cut 5,000 jobs and close a number of plants, are all cited as reasons why Bayer’s current deals with bioinformatics and genomic firms are so crucial to its long-term viability as a drug maker, analysts said.

“Bayer…has to rethink its strategy of how to build a nice and sustainable portfolio,” said Gunnar Weikert, CEO of German venture capital company Inventages. “In my eyes, that means having more development candidates in your portfolio to make sure that you can identify the best candidates.”

Weikert, who helped broker Bayer’s collaboration with Millennium, one of Bayer’s top collaborators, conceded that Bayer’s drug business probably will not spend any additional money on new deals. Instead, he said, “the partnerships they have now are extremely successful, so I would say that they will try to intensify them to get something more in the hopes of identifying new compounds.”

“This [discovery effort] will be—or should be—increased,” he added. “Nobody has made a decision right now, though details of the future of Bayer’s relationship with these companies will play out in a couple of months as Bayer looks for a partner.”

Not everyone agrees that intensifying its current relationships with bioinformatics or genomics companies will spur drug discovery and revive long-term projections.

Paul Knight, an analyst with Thomas Weisel Partners who covers CuraGen, another one of Bayer’s important partnerships, considers Bayer’s current position “more of a negative than a positive” harbinger for its collaborations.

“It’s a bull market attitude,” he said, when asked whether he thought that the answer to Bayer’s woes lies in a more beefed-up product pipeline courtesy of bioinformatics and genomic efforts. “Precedent hasn’t supported that argument,” he said. Fortifying its pipeline doesn’t ready a drug company for the future. Instead, he said, it dilutes its interests and exposes it to undue risk.

“What happens if more experimental molecules are put in the pipeline and then are shown not to work? Your stock gets hit,” Knight said. Bayer is not in the position to open itself up to those risks, he added.

Besides, “mergers tend to delay, or at least not accelerate, the drug-discovery process,” he said.

“Now is not the time to intensify efforts, because you typically won’t yield results for at least 12 months,” agreed Michael Clulow, who covers Lion for UBS Warburg. “And when you’re in a position of trying to sell your business, the last thing you want to do is increase your cash burn by financing new research and development.”

Added Knight: “If they try to accelerate, this will hurt them.”


It is clear to most industry watchers that Bayer's drug business, which earned $26 billion in sales in 2000, was becoming too small to compete in the US drug arena against Goliaths like Pfizer, which earned $30 billion in 2000, and Bristol-Myers Squibb, with 2000 sales of $40 billion.

Two years ago, Bayer, which ranks 15th among the world’s top drug makers, sensed that it needed a stronger product pipeline. So it began forging alliances with leading-edge bioinformatics and genomics firms, which had revolutionized drug-discovery technology and promised to bring better products to market cheaper, faster, and in greater numbers.

In 1998, Millennium and Bayer forged an alliance that was thought at the time to be the largest of its kind in pharmaceutical and genomic research. The five-year deal called for Bayer to invest $465 million on top of a roughly 14 percent equity investment in the company in exchange for access to newly discovered genomics-based drug targets.

For Bayer, the collaboration meant a pipeline that would eventually carry some 225 potential drug targets for a variety of disease states. In January, less than 18 months after partnering, Cambridge, Mass.-based Millennium announced that it and Bayer had selected an oncology drug candidate to enter human studies.

In 1999, Lion, with headquarters in Heidelberg, Germany, signed a five-year collaboration with Bayer to create an IT-based system for in silico  research designed to identify and validate potential drug targets, gene-expression markets, and SNPs. 

This deal, valued at $100 million plus help from Bayer to build Lion a US-based research facility, was successful in identifying 250 targets for Bayer.

(Clulow, the UBS Warburg analyst, separately told GenomeWeb  that Lion “is very close” to signing “several deals” similar to the one it struck with Bayer. He added that while Bayer “accounts for a good chunk” of Lion’s revenues today, “that customer concentration will diminish six months from now.” He expects Lion to announce the new deals in the next quarter.)

In 2001, CuraGen, based in New Haven, Conn., sealed its own deal with Bayer. This partnership, for which Bayer paid $85 million in CuraGen stock, banks on CuraGen's ability to expand Bayer’s diabetes and obesity pipelines as well as to “improve the probability of success and lower drug development costs.” The collaboration has a combined value of more than $1.4 billion.

In June, four months after they sealed their deal, CuraGen and Bayer announced that they had uncovered a dozen novel drug targets for diabetes and obesity.

Friedrich von Bohlen, Lion’s president and CEO, said in an interview that he believes these milestones underscore the new technologies’ proof of concept and, together with Bayer’s desperate need for new products, will likely intensify his company’s collaboration with its neighbor to the north.

“I believe that Bayer’s announcement is more of an opportunity to us than a threat,” von Bohlen said. “I am absolutely sure that this represents an opportunity for … the big partners of Bayer.” He quickly added: “But Bayer will not pick up the phone today and call (the big partners) and say ‘How can we improve and intensify our (drug-discovery) efforts?’”

“Bayer has more pressing problems at the moment to get into the nitty gritty about its collaboration with Lion,” he said.

CuraGen and Millennium, for their part, would not speculate about how Bayer’s merger plans might affect their collaborations.

Representatives from Bayer did not return several telephone calls seeking comment.

Analysts also were comfortable that Bayer's collaborations would remain unchanged regardless of the company with which it decides to merge.

“I don’t really see any problem [with Bayer merging its drug business],” UBS Warburg’s Clulow said, “unless the merging company had a fundamental belief that informatics wasn’t where they [wanted to take] their drug-discovery efforts.”

Although Bayer’s Schneider said in the news conference that he was already approached by two pharmaceutical companies, he would not say which those were.

Media reports since Monday’s announcement have speculated that companies likely to approach Bayer include US firms Merck, Pfizer, Eli Lilly, Bristol-Myers Squibb, and American Home Products, and the European companies Sanofi-Synthelabo, Roche Holding, GlaxoSmithKline, Aventis, and Novartis.

Do Bayer’s bioinformatics or genomics collaborations have anything to fear from these firms? “No,” said Clulow. “All of these companies have dedicated bioinformaticists.”

Besides, added von Bohlen, “there is no change-of-control clause in our contract with Bayer. That is why we sleep well at night."

The Scan

Enzyme Involved in Lipid Metabolism Linked to Mutational Signatures

In Nature Genetics, a Wellcome Sanger Institute-led team found that APOBEC1 may contribute to the development of the SBS2 and SBS13 mutational signatures in the small intestine.

Family Genetic Risk Score Linked to Diagnostic Trajectory in Psychiatric Disorders

Researchers in JAMA Psychiatry find ties between high or low family genetic risk scores and diagnostic stability or change in four major psychiatric disorders over time.

Study Questions Existence of Fetal Microbiome

A study appearing in Nature this week suggests that the reported fetal microbiome might be the result of sample contamination.

Fruit Fly Study Explores Gut Microbiome Effects on Circadian Rhythm

With gut microbiome and gene expression experiments, researchers in PNAS see signs that the microbiome contributes to circadian rhythm synchronicity and stability in fruit flies.