Bayer’s M&A comeback is reassuringly expensive. The German drugs-to-seeds conglomerate is buying privately held Asklepios BioPharmaceutical, a gene therapy specialist, for up to $4 billion. Although the price is high, it strengthens Bayer’s position in a promising sector, and will help take the focus off its disastrous Monsanto acquisition.
Werner Baumann has few reasons to cheer. The Bayer chief executive said last month he does not expect any sales growth next year, as the crop science business bought from Monsanto for $66 billion in 2016 is struggling. He is still trying to finalise an $11 billion settlement with claimants who argue that a weedkiller acquired in that same acquisition gave them cancer.
Baumann at least is getting ahead of the next problem: the pharma division, which made up 40% of sales in 2019. Bayer’s two-star drugs, anti-clotting medication Xarelto and eye medicine Eylea, are coming off patent in the next five years, forcing it to buy new products.
Moving aggressively into gene therapy makes sense. The new technology allows doctors to treat diseases such as cancer by injecting DNA into the patient to replace or counter a defective gene. The number of gene therapy trials has more than doubled in the past 10 years, according to Gene Medicine. There are concerns over pricing – treatment can cost as much as $1 million per year – but the market is forecast to rise 10-fold to nearly $36 billion between 2019 and 2027, according to Fortune Business Insights.
Asklepios already makes treatments for rare diseases including muscular dystrophy. But its star attraction is probably its manufacturing capability. That may give Bayer protection from rising costs and delays caused by the rapid growth in new therapies, allowing it to steal a lead over rivals. Gene therapy groups can wait up to three years to get drugs made from third party manufacturers, UBS reckons.
This explains the juicy price. Asklepios does not disclose revenue or profit numbers, but was valued at around $800 million in 2019, when TPG Capital bought in, just a fifth of the full price Bayer may have to pay if all goes well. That suggests Baumann may have a while to earn a decent return. However, unlike the Monsanto deal, Bayer’s latest acquisition is at least unlikely to do much harm.