Bayer AG | Company & CEO Profile
Bayer AG (BAYRY) is a German company with headquarters in Leverkusen that produces pharmaceuticals, agricultural, and biotechnology products. It is among the world’s largest pharmaceutical companies and is ranked 12th in the top 20 pharma brands in 2020. The list, which is topped by Johnson & Johnson, also includes Novartis, Abbvie, Sanofi, AstraZeneca, and Roche.
In 2018, Bayer acquired Monsanto, something that made the company an important player in the pesticide industry. Now, Bayer is one of the largest pesticide companies, one of the leading suppliers to the agricultural industry, and the established leader in crop science. In the field of seeds, traits, and crop protection, it stays ahead of the competition in terms of sales, profitability, and R&D investments. In 2020, Bayer’s Crop Science Division reported 18.8 billion euro of sales, 4.5 billion euros of EBITDA, and 2 billion euros of R&D spending. Whereas the sales of its closest competitor, Syngenta, amounted to 15.4 billion euros, with 2.9 billion euros of EBITDA and 1.2 billion euros of R&D investments.
Earlier this year, Bayer unveiled its plans to divest its pest control unit in order to focus on its core agricultural business and reduce debt after the purchase of U.S. Monsanto for $63 billion five years ago. The matter concerns Bayer’s Environmental Science Professional business that offers solutions to pest and weed control and had revenue growth of more than 7% last year. The auction is to be held soon while the deal worth 2 billion euros is expected to be signed by the end of the year.
The company had a subsidiary, Bayer Animal Health, which was fifth in the ranking of the leading animal health companies after the U.S. Zoetis Inc., German Boehringer, and two well-known American brands — Merck and Elanco. Bayer made innovative therapies and veterinary medicines and also was the world’s largest maker of flea and tick control products for cats and dogs. However, in 2020, Bayer AG sold its Animal Health business unit to the American company Elanco for $5.1 billion. As of 2019, Bayer’s Animal Health division achieved sales of 1.57 billion euros.
In January 2021, a vaccine partnership was created between Bayer and CureVac, a Nasdaq-listed biopharmaceutical company. Under the deal, CureVac develops the COVID-19 vaccine, while Bayer will mass-produce and distribute it taking advantage of its worldwide network. Bayer hopes to supply the first doses of the CureVac vaccine at the end of 2021 and next year, 160 million doses are planned to be manufactured. The CureVac vaccine relies on the same technology that has helped the competitive companies BioNTech and Moderna lead the development race. However, in June, CureVac reported “disappointing” trial results showing that the vaccine is only 47% effective against novel coronavirus as compared to 95% efficacy of Pfizer-BioNTech and Moderna products.
In June 2021, Fitch Ratings affirmed Bayer's issuer default rating (IDR) at BBB+'. The agency notes that the company’s profitability is approximately at the same level as that of GSK, AstraZeneca, and Sanofi but lower as compared to Merck & Co., Inc., Pfizer, Roche, and Novartis. “The 'BBB+' Issuer Default Rating (IDR) reflects Bayer's strong market positions and diversification across life-science sectors with underlying growth, and Fitch's expectation of increasing financial flexibility under the rating as Bayer continues its focus on core businesses including progress in its ongoing restructuring programme,” the American credit rating agency says.
Among the major drivers for the high ratings, the agency names Bayer’s diversified business profile. Bayer AG has strong market positions in three main divisions — pharmaceuticals, crop science, and consumer health. The improving agriculture market and favorable social and economic trends, such as the growing population, will contribute to the company’s success as well. That said, there are some legal uncertainties around potential payments to claimants in the glyphosate litigation.
The History of Bayer AG
Established in 1863, Bayer initially started out as an enterprise producing dyestuffs. The enterprise was growing rapidly and in the early 20th century became a chemical company with international operations. However, what made the company famous was the introduction of Aspirin, a registered brand of acetylsalicylic acid. In the 1900s, the company was engaged in the commercialization of heroin as a cough suppressant. In 1912, the company brought to the market phenobarbital, a potent anti-epileptic drug under the trade name Luminal, which is still recommended by the WHO for epilepsy treatment in developing countries.
In 1925, Bayer and 6 other chemical companies merged into IG Farben, which became the largest chemical brand of that time. During World War II, the company was involved in medical experiments on prisoners of concentration camps, especially those at Auschwitz. Among other things, Bayer’s physicians deliberately infected prisoners of concentration camps with typhus and tested the efficacy of their drugs, as a result of which many people died, according to the Holocaust Encyclopedia. After the war, IG Farben’s board director and a member of the Nazi Party, Fritz ter Meer, who was involved in mass murders and enslavement, was convicted of war crimes for helping to plan IG Farben’s factory at Auschwitz. He was sentenced to 7 years in the Nuremberg Trials and released in 1950 for good behavior. Six years later, Fritz ter Meer was elected to Bayer’s supervisory board and retained that position until 1964.
In the postwar period, IG Farben was divided into several companies and Bayer became an independent enterprise. In the 1970s, Bayer reemerged as one of the industry leaders and joined the ranks of the world’s largest pharmaceutical enterprises.
Bayer Product Portfolio
Bayer AG owns multiple brands, some of which have decades of history while others have been recently introduced to the market. The company focuses on three areas: pharmaceuticals, consumer health, and crop science. Pharmaceuticals include prescription products for such health issues as cardiology, bacterial and neurological diseases as well as women’s healthcare; specialty therapeutics used in hematology and oncology; and diagnostic imaging equipment applied in radiology.
Bayer’s best-selling medicine is Xarelto™, which is a blood clot-reducing medicine intended for treating coronary artery disease. In 2020, Xarelto generated about 3.8 billion euros in revenues for Bayer. The second-highest revenue-generating medicine for the company is Eylea™, a prescription drug for the treatment of patients with wet age-related macular degeneration. This product generated about 2.1 billion euros. Mirena™, a hormonal intrauterine device for pregnancy prevention is third with 0.8 billion euros of revenue, followed by Kogenate™ for patients with hemophilia (719 million euros), Yasmin™ contraceptive pill (566 million euros), Aspirin Cardio™ (540 million euros), and the Nexavar™ medicine for the treatment of liver cancer (540 million euros). The Adempas™ medicine for pulmonary hypertension, the calcium channel blocker Adalat™, and another anticancer therapy Stivarga™ generated 530 million euros, 517 million euros, and 401 million euros of revenue last year.
The second product category incorporates non-prescription medicines, in particular, dermatological, cough and cold, digestive health, and other products. The best-selling Bayer over-the-counter products are Claritin™, a medicine designed to relieve seasonal allergies, Aspirin™, Bepanthen™, Aleve™, Canesten™, Alka-Seltzer™, Elevit™, One A Day™, and MiraLAX™.
Bayer’s Crop Science division offers seeds and innovative pest control solutions, both biological and chemical. This includes Gaucho™ and CropStar™ seeds, Adengo™ and Corvus™ herbicides, Confidor™, Belt™, Movento™, and Sivanto™ insecticides, Xpro™, Serenade™, and Luna™ fungicides, and the Roundup solution for weed control, among other products. The key products in this category are Confidor™, Gaucho™, and Nativo™.
Financial Performance
According to Bayer’s Annual Report, the total net sales of Bayer Group fell by almost 5%, from 43.5 billion euros in 2019 to 41.4 billion euros in 2020. In terms of sales, the leading business segment was the Crop Science Division, which accounted for 18.8 billion euros of net sales, which is a 1 billion-euro drop from 19.8 billion euros in 2019. Pharmaceuticals generated 17.2 billion euros of sales and 5 billion euros came from the Consumer Health segment. The largest portion of Bayer’s sales was attributable to product deliveries (37.7 billion euros) and that’s where the decline in sales occurred. Licensing, on the contrary, demonstrated solid growth and reached 3 billion euros of sales, with revenues driven primarily from Bayer’s Crop Science Division.
The company says that the decline in sales was largely due to the fact that the pharmaceuticals business was substantially weaker than planned. “The decline was driven partly by the effects of the COVID-19 pandemic on sales development in the contraception and radiology portfolio, and partly by the significant drop in internal sales in China, one of the principal markets. In addition, the performance of the best-selling product, Xarelto™, was below expectations,” the company explained.
In terms of geographic segmentation, Bayer AG’s sales fell in all regions, except for North America where there was a noticeable increase. As for pharmaceuticals, sales of eye drug Eylea slowed down due to the pandemic-related restrictions, while Bayer's birth control products, primarily Mirena, were affected more seriously with sales falling by 8.7%. Sales of the company's best-seller Xarelto grew by 12.4%, largely thanks to strong performance in Europe and China. Sales of Aspirin™ increased by 14%, Stivarga™ was up by 18%, and Adempas™ sales skyrocketed by 52%. The rest of Bayer’s best-selling medicines have been in decline in the downtrend last year.
Nevertheless, Bayer is starting to recover after a downtrend in the 2nd quarter of 2020, CEO Werner Baumann said. For instance, Eylea sales improved in the 4th quarter, helped by the launch of a prefilled syringe version. However, it is not only best-selling products that the company pins its hopes on. Some of its new products are expected to contribute to the growth as well. In addition to good sales performance of the Stivarga medicine, the oral administration of which turned out to be highly beneficial in the times of the pandemic, there are three other new potential best sellers in Bayer’s portfolio. The first of these promising drugs is Nubeqa developed for prostate cancer treatment. Nubeqa, which was developed jointly by Bayer and the Finnish pharma company Orion Corporation, is already approved by regulatory bodies in the U.S., EU, Brazil, Canada, Japan, and China. Trials show that the medicine is able to delay tumor metastasis and even prolong the lives of patients. Analysts believe that Nubeqa can challenge Johnson & Johnson’s Erleada and Pfizer and Astellas’ Xtandi.
The second product is Verquvo for patients with chronic heart failure, which was developed by Bayer and Merck & Co. Approved in the USA and EU, Verquvo has shown efficacy in trials, reducing the risk of cardiovascular death by 4.2%. Merck has commercial rights to this product in the U.S, Bayer markets it in the rest of the world. Thirdly, there is Finerenone, an investigational medicine that hinders kidney and heart diseases. The advantage of this product is that it does not influence a blood sugar level, an essential property for patients with diabetes.
In the first quarter of 2021, Bayer’s Crop Science Division demonstrated particularly strong sales growth, driven by an improving market environment and the company's net income increased 40% as compared to the same period last year. Bayer Group’s sales were up by 2.8% to 12,3 billion euro, although diminished by a negative currency effect. The most significant growth was observed in Latin America and Asia. The Crop Science business saw a 6.4% growth in sales to 6.6 billion euro. The sales of herbicides and fungicides increased due to volume gains and higher prices for some products. Seed and trait products generated high sales mainly because of volume gains in North America.
As for pharmaceuticals, Xarelto™ sales were up in China and Russia while in the USA, Bayer benefited from the launch of its cancer drug Nubeqa™. Sales of the ophthalmology drug Eylea™ rose significantly as compared to the previous year, which can be explained by the positive development in Japan and higher volumes in China and Europe. Sales of oral contraceptives were encouraging while blood-clotting products were down because of the growing competition.
However, the company’s performance in the second quarter was disappointing. Bayer shares fell 6.1% after the company reported lower-than-expected 2nd-quarter earnings, which was caused by higher production costs at the Crop Science division. The Pharmaceuticals Division, on the other hand, was on the rise with second-quarter sales increasing 16.2%.
Acquisitions
Throughout its history, Bayer AG has made 14 acquisitions, investing in different segments including crop technology, genomics, and life sciences. Among the most recent ones, the key purchases are the acquisition of the U.S. company Monsanto for $63.50 billion in September 2016, Oslo-based Algeta for $2.9 billion in December 2013, and the U.S. gene therapy company Asklepios BioPharmaceutical for $2 billion in October 2020.
Most recently, in August 2021, Bayer acquired the U.S.-based biopharmaceuticals company Vividion Therapeutics for up to $2 billion. Vividion focuses on the development of better cancer therapies through novel discovery platforms. The takeover lifted the company’s outlook for 2021 and now Bayer expects sales of 43 billion euros this year, up from 41 billion euros earlier. “We get access to a very attractive, highly innovative, competitive early-stage pipeline. So sometimes you get a pipeline and sometimes you get a technology platform. Vividion offers both,” said Christian Rommel who heads Bayer's pharma R&D. Rommel also notes that the Vividion acquisition “fits in the bigger picture” of the company’s transformation in the field of research and development, meaning Bayer’s purchase of gene therapy company AskBio last October and the acquisition of cell therapy biotech BlueRock two years ago.
In June 2021, Bayer purchased New York-based Noria Therapeutics Inc. and PSMA Therapeutics Inc., which allowed the German company to broaden its oncology portfolio of targeted alpha therapies. The two acquired companies own exclusive worldwide rights to technology licensed from Weill Cornell Medicine and Johns Hopkins University. Late in 2020, Bayer completed its acquisition of Asklepios BioPharmaceutical, also known as AskBio, for $4 billion. North Carolina-based AskBio develops investigational gene-therapy products for the treatment of neuromuscular, cardiovascular, and metabolic diseases. It exploits the harmless adeno-associated virus to bring genetic repair kits against different diseases into the body. The acquisition allowed Bayer to launch the Cell and Gene Therapy Platform within its Pharmaceutical Division. In this field, the company focuses primarily on stem-cell therapies and gene editing. A year earlier, Bayer purchased Toronto-based BlueRock Therapeutics, a company that develops cell therapies in neurology, cardiology, and immunology, for $600 million.
In August 2020, Bayer AG announced its plans to buy the majority stake in the vitamin and health supplement company Care/of for $225 million. Bayer expects that Care/of products will help it reach new customers and grow across new product categories. Care/of is a subscription-based healthcare technology company with headquarters in New York. For Bayer, this could become a promising area of business, given that online vitamin and supplement sales in the United States jumped by 15% last year, the market researchers from IBISWorld say. In the same period of time, Bayer decided to acquire the British KaNDy Therapeutics, a clinical-stage biotech company that was founded in 2017 to develop treatments for female sex-hormone related conditions. The takeover means for Bayer a further expansion of its drug development pipeline in women’s healthcare. KaNDy Therapeutics Ltd. has already completed the Phase IIb study for its investigational compound, NT-814, designed for the treatment of moderate to severe vasomotor symptoms in women associated with menopause.
The most expensive acquisition was that of the American agrochemical and biotechnology corporation Monsanto with headquarters in Missouri. Established 100 years ago, the company has become a major manufacturer of genetically engineered crops and its most popular product is the glyphosate-based herbicide Roundup. Thanks to the Monsanto acquisition, Bayer is now one of the leading developers of biologicals.
The takeover worth $63 billion faced tough antitrust scrutiny, however, it turned out to be not the only problem for the German pharma giant. The Monsanto acquisition deal is viewed by many analysts as “one of the worst corporate deals.” Championed by Bayer’s CEO Werner Baumann, the Monsanto acquisition deal was intended to make Bayer the world’s largest crop science business. The problem is that initially it was supposed not to obstruct the company’s ability to invest in its pharmaceuticals business, which has been driving Bayer’s growth for years.
“Mr. Baumann, who was Bayer’s strategy chief before he became CEO, had long set his eyes on Monsanto, people familiar with his thinking said”. The Wall Street Journal wrote. “The U.S. company, he calculated, would turn Bayer’s smaller agrochemicals business into a market leader by combining its pesticides with Monsanto’s seeds and high-tech crops”.
After the takeover completion in 2018, Bayer faced and lost a number of lawsuits alleging Roundup herbicide could cause cancer. A total of 18,400 plaintiffs filed suits at that moment. Besides, the new owner was not immediately allowed to operate the business as the court ordered Monsanto to pay $78.5 million in damages. All this has undermined investors’ confidence and Bayer’s management decided to sell some of the company’s assets and cut the workforce by 10%. Nevertheless, Bayer’s stock price continued to fall, shrinking from about $30 per share in 2018 to less than $15 in 2021. Its market capitalization decreased from $104 billion in July 2018 to $59 billion in July 2021. Although shareholders withdrew confidence in Mr. Baumann, the Board stood behind him.
The second-largest acquisition made by Bayer was the takeover of Schering AG, a pharmaceutical company headquartered in Berlin. The deal worth 14.6 billion euro was completed in 2006. The merger of Schering AG and the Bayer pharmaceuticals division created a new heavyweight in pharmaceutical specialty products that entered the ranks of the world’s top companies in the industry.
Roundup Litigation
Unearthed, a Greenpeace journalism project, published an investigation into CropLife International, describing it as a lobby group for the major global agricultural biotech companies including Syngenta, Bayer, BASF, Corteva, and FMC. It said that chemicals classed as posing health hazards accounted for 22% of the CropLife sales. The article says that 41% of the leading products of the agrochemical giants Bayer, BASF, Corteva, FMC and Syngenta contained at least one highly hazardous pesticide. The Roundup, which is the world’s most popular weedkiller owned by Bayer as a result of the Monsanto takeover, is said to be one of such pesticides. A spokesman for Bayer Crop Science told Unearthed that the classification was “incorrect” and that health regulators around the world concluded that Bayer’s glyphosate products could be used safely.
Over the last years, Bayer has faced around 125,000 claims, both filed and unfiled lawsuits, from plaintiffs in the USA, the company’s biggest glyphosate market, who claim that Roundup causes cancer. The company has settled all except for 30,000 of these claims, but three lawsuits have gone to trial. The company has lost 3 out of 3 trials and was ordered to pay as much as $2 billion in damages for failing to warn customers of a possible link between its products and cancer. In 2018, a California court ruled in favor of a former groundskeeper with terminal cancer, awarding him $289 million in damages. The penalty was then reduced to $78 million. In 2019, the U.S. District Court jury found that the exposure to Roundup caused cancer in 70-year-old Edwin Hardeman. In the same year, a California court found the company liable for non-Hodgkin’s lymphoma in 76-year-old Alva Pilliod and his wife 74-year-old Alberta, awarding each of them with $1 billion in punitive damages and $55 million in compensatory damages. The new, fourth Roundup cancer trial is starting in California in early August. Lawyers representing Donnetta Stephens say that their client has been using Roundup for more than three decades and that it was the exposure to the glyphosate solution that caused her blood cancer called non-Hodgkin lymphoma.
Bayer officials say that the company is open to settlement discussions that could help resolve litigation claims. Besides, Bayer will appeal cases that it lost in previous years. In August, the company is going to petition the U.S. Supreme Court regarding the Hardeman v. Monsanto case. “We do believe that the Supreme Court should give strong consideration to accepting our petition, to review the Harmon case and render a positive ruling (for Bayer),” says Werner Bauman, Bayer CEO.
The reason for optimism is in the fact that things have changed since 2019 and new studies have been showing that science is on Bayer’s side, according to Bauman. According to him, the EPA believes that there are no human health risks of concern resulting from the use of glyphosate. Additionally, this summer, the EU's Assessment Group on Glyphosate (AGG) has found that “no chronic or acute consumer risk is expected from the treatment of crops with glyphosate” and that this ingredient “meets the approval criteria for human health.”
Anyway, at the end of July 2021, Bayer unveiled its plans to replace all glyphosate products sold in the U.S. lawn and garden market with alternatives starting in 2023. According to the company’s officials, the active ingredients that will replace glyphosate are well-established ingredients formulated in a new way. The new formulations are pending approval by the Environmental Protection Agency (EPA) and once approved, will be sold under the Roundup brand. “This is exclusively geared at managing litigation risk (from glyphosate-cancer lawsuits) and not because of any safety concerns,” noted Bauman. Bayer’s glyphosate products will still be available for agricultural application because the majority of claims came from people using them to treat their lawns and gardens. “This action largely eliminates the primary source of future claims,” the company’s press release states.
Since it is not clear whether the Supreme Court will take up the case, Bayer informed its shareholders that it set aside $4.5 billion in the second quarter of 2021 to resolve possible future claims, in addition to the amount of $11.6 billion that Bayer had earlier planned to spend to resolve the Roundup litigation. “It is important for the company, our owners, and our customers that we move on and put the uncertainty and ambiguity related to the glyphosate litigation behind us. This clarity should also allow informed investors to direct their focus on operational performance, the quality of Bayer’s businesses, and its intrinsic value,” Werner Baumann explained during an investor call.
Additionally, the company is discussing with EPA the change of Roundup labels to provide users with additional information about related scientific evidence. On top of that, Bayer will launch a website featuring scientific findings regarding Roundup and its ingredients.
It’s worth noting that in many cases, the media was not on the side of the German chemicals giant. For instance, Cameron English, an editor at the American Council of Science and Health, believes that some media outlets mislead Readers about chemical safety and journalists are not always honest about pesticides. He mentioned an Intercept article describing Charles Benbrook, who was an expert witness in the Roundup litigation, as “a veteran agricultural economist who has spent years poring over internal documents on pesticides”. But the truth is that Benbrook is an organic food-industry consultant who was paid $100,000 to promote pro-organic studies, meaning he had conflicts of interest. Benbrook began his work in the early 1980s as the staff director of the Congressional Subcommittee that was investigating cancer-causing pesticides.
Earlier, the Wall Street Journal reported that plaintiffs’ lawyers spent more than $77 million to advertise Roundup lawsuits for eight months. The story began in the spring of 2015 when the WHO’s International Agency for Research on Cancer published its findings saying that glyphosate was “probably carcinogenic” to humans. Within days, the domain name www.RoundupInjuries.com was registered by the law firm Weitz & Luxenberg PC and it took a few months for TV ads to appear looking for Roundup users who suffer from cancer. “Behind the surge in lawsuits is a little-known, sophisticated legal ecosystem that includes marketing firms that find potential clients, financiers who bankroll law firms, doctors who review medical records, scientists who analyze medical literature and the lawyers who bring the cases to court,” the newspaper writes.
Bayer’s Lobbying Activities
In 2020, Bayer’s total lobbying expenditures amounted to $6.7 million, a significant decline from $9 million in 2019. The number of lobbyists working for Bayer has also reduced from 76 in 2019 to 59 in 2021. Despite this reduction, Bayer is still one of the biggest spenders on lobbying in the pharmaceuticals industry. As of 2019, Bayer was 6th in the list of the pharma’s biggest spenders on congressional lobbying, with Pfizer being on top of the ranking.
The Bayer Group has a Public and Governmental Affairs Committee that establishes the company’s position regarding relevant political and legislative decision-making processes. In the USA, where corporate donations are banned by law for federal elections, some Bayer employees use the company’s Corporation Political Action Committee (BayPac) to support candidates by means of private donations.
The lobbying firms hired by Bayer include the following Washington-based companies: Capitol Counsel LLC, BGR Group, ACG Advocacy, LLC, Akin, Gump et al, Forbes Tate Partners, Hobart Hallaway & Quayle Ventures, and a number of others. One of the Capitol Counsel’s lobbyists working for Bayer, Charles Jr Boustany, is a former Congressman from Louisiana and a member of the Republican Party. A large portion of lobbyists, who have been active these years, are Bayer’s employees. These are Kellie Adesina, who is Director of Government Affairs at Bayer U.S., responsible for gene editing and other crop science issues. Last year, she also became a co-founder of a new organization called Black Professionals in Food and Agriculture. Julie Corcoran, Director of Federal Relations and Policy in Healthcare at Bayer Global, has been lobbying the U.S. Congress, House of Representatives, and the EPA.
Mike Parrish, Vice President for Public Affairs, Science and Sustainability at Bayer is in charge of legislative and policy engagement in the USA and represents the company’s interests before Congress, The White House, and other agencies. Besides, Parrish oversees Bayer’s philanthropic activities in the USA. Michael D Jr Holland, Director of Government Affairs at Bayer Crop Science, and Peter Stehouwer, Director of Federal Government Relations at Bayer Global are among other lobbyists who have been representing the company in 2021.
Leadership & Shareholders
Bayer stock is traded on the New York and Frankfurt Stock Exchanges. The most notable institutional shareholders are Harris Associates LP (3%), Norges Bank Investment Management (2.9%), and The Vanguard Group, Inc. (2.5%). The general public, mainly retail investors, owns 60% of Bayer. No hedge fund owns the stock in the company. Nor is there any data regarding insider ownership.
Werner Baumann (58 years old) has been CEO (Chairman of the Management Board) of Bayer Group since 2016. Born in the German city of Krefeld, Baumann was the first in his family to be enrolled in a university. Having completed his education at RWTH Aachen University and the University of Cologne, where he studied economics, Baumann began his career at Bayer in 1988. First, he worked in the Corporate Finance Department and then was transferred to Bayer’s Spain division where he worked as an assistant to the managing director, Werner Wenning, who then became Chairman of the Supervisory Board of Bayer Group.
“I have certainly been quite lucky in my career, having always had the benefit of working for very smart leaders from whom I could learn and who had a genuine interest in me, both personally and professionally. I have certainly advanced much further in my career than I ever thought,” Baumann said in an interview.
In 1996, he began to work at Bayer Corporation in New York and six years later moved to Germany, where he became a member of the Executive Committee and Head of Central Administration & Organization at Bayer HealthCare. In 2010, Baumann was appointed Chief Financial Officer of Bayer AG and four years later became Chairman of the Board of Management, where he was responsible for Europe, Middle East, and Africa regions.
Werner Baumann is married and has 4 children, three of whom were born in the USA and, according to him, “continue to have strong ties to America''. Baumann’s total compensation at Bayer AG is $6.2 million. He is also known to be a collector of vintage cars. Described as “quiet and unassuming”, Baumann has been under pressure over the last years because of the Monsanto merger and Roundup litigations.
Werner Wenning, Baumann’s former boss, left the company before his term as Chairman of the Supervisory Board expired and was succeeded in April 2020 by Norbert Winkeljohann. Wenning groomed Baumann for years and the two were said to be very close. The Monsanto acquisition deal was actually the brainchild of Wenning and Baumann, and the idea was born even before Baumann was appointed CEO. Shareholders believe that Wenning was tightly linked to the “current difficult situation” and wanted “independent oversight of Bayer’s further strategic development”.
The departure of Wenning is expected to give Baumann more flexibility, provided the Roundup litigation will be resolved in the near future. In August 2019, Baumann was dealt a symbolic blow at the company’s annual general meeting as shareholders showed their disgruntlement over continuing litigations. More than 55% of shareholders voted against the management board, led by Baumann, as compared to 97-percent support in the previous year. Although the vote was symbolic, it meant that the CEO lost the confidence of the majority of shareholders.
It took Baumann one year to restore shareholders’ confidence and in April 2020, more than 92% of the votes cast were in favour of ratifying the board’s business conduct during 2019. And in September, Bayer’s Supervisory Board unanimously decided to extend Baumann’s contract until April 2024. Under his leadership, the company will have to overcome the effects of the COVID-19 pandemic, set the course for profitable growth of the Pharmaceuticals Division, build on the leading position of the Crop Science business by means of innovation and digitalization, and speed up the growth at Consumer Health division. Although Bayer’s Supervisory Board praised Baumann’s work, he indicated that 2024 would be his last year with the company. And, remarkably, Baumann got only a 3-year contract instead of the maximum 4-year extension.
Dr. Norbert Winkeljohann (63 years old) has been Chairman of the Supervisory Board since April 2020. He is also a board member at Deutsche Bank AG, Bohnenkamp AG, and Sievert AG. Born in Osnabrück, Germany, Winkeljohann studied economics at the Westfälische Wilhelms University and the University of Hagen. In the 1990s, he worked as a tax consultant in London and then joined the auditing company PricewaterhouseCoopers AG as a partner. Winkeljohann is relatively new at Bayer and joined the Supervisory Board only in 2018. According to Emmanuel Papadakis, an analyst at London’s Barclays, Norbert Winkeljohann is “something of an unknown quantity to the majority of Bayer investors” but he is expected to bring a fresh pair of eyes to the company’s business.
Outlook for Bayer AG
The general opinion is that much depends on the litigation outcome: whether the company will receive a favorable Supreme Court decision or will have to resort to Plan B and spend billions of dollars to settle new lawsuits. Baumann hopes that the U.S. Supreme Court will support the company and “largely end” the loss-making Roundup litigation, but the scenario including $4.5 billion spendings is now considered to be the “base case”. However, as Reuters put it, Bayer’s decision to remove Roundup from the consumer market would hardly help. The thing is that the disease of non-Hodgkin lymphoma, which glyphosate is blamed for, takes up to 15 years to develop after exposure, leaving Bayer with at least 10 years of litigation.
The other problem is investors’ disgruntlement. Although the performance of Bayer’s management was approved at the recent annual meeting, there is no uniform position among investors. According to Bloomberg, several of the company’s 25 largest shareholders questioned the timing of the CEO’s contract extension since Bayer still continued to tackle the consequences of the Monsanto takeover initiated by Baumann. Others advocate the company’s breakup into separate pharmaceutical and agrochemical companies, claiming there is little synergy between these business areas. Among shareholders, one of the vocal advocates of Bayer’s split is the U.K.-based Elliott Management Corp., headed by billionaire Paul Singer. The new Bayer AG Chairman Norbert Winkeljohann supports keeping the company whole, however, Bloomberg refers to some of his conversations where he does not expressly deny a shift in strategy or leadership after the Roundup situation is settled.
At the same time, while being a huge headache for Bayer, the Monsanto takeover has brought the company’s business to a new level. Before the acquisition, crop sciences were overshadowed by pharmaceuticals, representing around 7.5 billion euros of Bayer’s business as compared to 16.4 billion euros generated by the sales of pharmaceuticals. Following the merger, the company’s Crop Science division has grown to more than 16.8 billion euro in 2018, surpassing the pharmaceuticals business. Additionally, Bayer got rid of its Animal Health unit and some consumer health brands to channel more of its resources to the crop and pharmaceutical businesses.
Baumann views 2021 as a transition year but says that there are already indications that the company had a successful start to the year. “In the agriculture business, in particular, we see a market environment that gives us an increasingly positive perspective,” he told the shareholders. In the area of agriculture, Bayer invests more money into research and development than any other rival company. In 2020, the company commercialized 10 new formulations for crop protection, developed 3 essential biotechnology products, and offered over 430 new varieties of corn, vegetables, and soybeans to farmers. Starting from 2022, Bayer is expecting the above-market growth of its Crop Science business.
Today, pharmaceuticals are Bayer’s second-biggest business, accounting for more than 41% of sales or approximately 17 billion euros in 2020. The second-quarter growth at Bayer’s pharmaceuticals business has also been strengthened by the acquisition of Vividion Therapeutics. In this area, the company pins its hopes on several products that have the potential to become bestsellers, such as Verquvo™, the annual sales of which will be at least one billion euros each. The expected sales growth of the Pharmaceuticals Division is estimated at 3% to 5% through 2023. Geographically, the company is going to strengthen its U.S. business and expand its leading position in China. Bayer will keep on strengthening its innovation capabilities, especially in the field of cell and gene therapy.
As for the Consumer Health division, Bayer is putting money in new technologies, including the acquisition of Care/of that strengthened the company’s position in the nutritional supplement market. More generally, there are three drivers for Bayer’s growth: the demand for innovations in the life sciences, the biorevolution boosting innovation in all divisions of the company — especially, in gene editing and cell biology — and the accelerated transformation of the company aimed at improving efficiency.
