Bayer shifts pharma focus away from ‘unfriendly innovation’ Europe

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Bayer has said it is shifting the focus of its pharmaceutical business to the US and away from Europe and the UK, where governments are making “big mistakes” in how they manage health budgets.

Stefan Oelrich, head of the German conglomerate’s drugs business, told the Financial Times that Europe was becoming “innovation unfriendly” because policymakers were making it more difficult to generate commercial returns on their investments. Tea expansion of a medicines levy in the UK designed to limit the NHS’s drugs bill and similar schemes in Germany were dissuading investment, he added.

“Europe is making some real big mistakes,” he said during an interview at the JPMorgan Healthcare conference in San Francisco, California.

“European governments are trying to create incentives for research investments, but they are making our lives miserable on the commercial side. If you have no sales, you can benefit on the cost side as much as you want but it is not a good equation,” said Oelrich.

He added that Bayer was “deprioritizing Europe to some degree” and focusing on the US and China, where its pharma division has already established a significant market presence. Beijing was increasingly welcoming of innovation, while higher drugs prices in the US enabled the company to compensate for the explosion of costs caused by high inflation, said Oelrich.

“We are really shifting our commercial footprint and the resourcing of our commercial footprint much away from Europe,” he added.

The pharmaceutical industry is becoming increasingly concerned about new levies and taxes in Europe that threaten profits. The sector has warned that it risks denting EU and UK policymakers ambition for their countries to become leaders in life sciences research and innovation.

Bristol Myers Squibb said last month that the expansion of the UK’s voluntary scheme for branded medicines pricing and access could divert investment away from the country.

This scheme is an agreement between the Department of Health and the pharma industry that required drug companies to pay a portion of their revenues from their products to the government if the NHS’s overall bill for medicines rises by more than 2 per cent annually. In 2022, the rate was set by the department at 15 per cent, generating $1.8bn in industry rebates. In 2023, the rate increased to 26.5 per cent and is forecast to cost $3.3bn.

Oelrich said the UK levy increased rebates to the NHS and translated into lower net prices. These were “significant cuts” and Bayer was reducing its commercial footprint and jobs as a result, he added.

“It [the levy] means we reduced net pricing in an environment with 10 per cent inflation. And we have no opportunity to pass on pricing in countries like the UK to the market,” he said.

The UK corporate tax rate is also set to rise to 25 per cent on April 1, up from the current rate of 19 per cent, delivering a further blow to corporate profits.

Also, the German parliament passed a new law in October aimed at shrinking the nation’s drugs bill, amid rising healthcare costs and budget pressures.

Bayer’s criticism of European and British health policies coincided with a visit by Nus Ghani, the UK’s minister of state at the department of business, energy and industrial strategy, to JPMorgan Healthcare to promote the UK as a life sciences research hub.

The UK government said it disagreed with the assessment by Bayer.

“The Life Sciences Vision sets out our ambitious plan to make the UK the most attractive place in the world for life sciences innovation. It has attracted £1bn of investment to the UK from leading global companies,” said a UK government spokesperson.

Bayer’s pharma division generates about 40 per cent of its sales in Europe, the Middle East and Africa, while North America and the rest of the world make up 23 per cent and 37 per cent respectively.

Oelrich said the company was investing heavily in the US, where it recently acquired biotech companies Asklepios BioPharmaceutical and Vividion Therapeutics in deals worth up to a combined $5.5bn.

The US expansion was bearing fruit, he said. At the JPMorgan conference, Bayer more than doubled its combined peak sales forecast for its four key fastest growing drugs — Nubeqa, Kerendia, Asundexian and Elinzanetant — to €12bn, up from €5bn.

The success of Bayer’s US pharma unit stands in contrast to the company’s disastrous $63bn takeover of Monsanto in 2018, which has cost it $16bn in legal settlements so far linked to claims that its weed killer Roundup caused cancer.

Activist investor Jeff Ubben announced last week that his investment fund had taken a stake in the German conglomerate and called on it to hire a new chief executive from outside its management ranks.

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