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    In late 2018, German pharma giant Bayer announced plans for a major restructure – a move that involves job cuts, plant closures and a new strategy for its pharmaceutical R&D setup.

    In September 2018, Bayer introduced a new leader for the pharma business – Stefan Oelrich – who joined the company from Sanofi.

    Amid all these changes,In Vivo explores the big pharma’s strategy and forms a picture of what Bayer Pharma will look like in the next decade.

In Leverkusen, Germany, following Bayer AG 's full-year 2018 earnings presentation in February,In Vivo sat down with Stefan Oelrich to discuss his first impressions since taking on the head of pharma role last year, the company’s approach to collaboration and externalization of research, and what Bayer will look like midway through the 2020s when it will hit a major patent cliff.

Bayer has around 50 projects in clinical development, with key novel compounds coming forward in the next few years that it hopes will make up for the profits soon to be lost when two of its best-selling products lose patent exclusivity. The anticoagulantXarelto (rivaroxaban) and the eye drugEylea (aflibercept) both face patent expirations in four to five years’ time. The two products have been leading drugs in Bayer’s pharma portfolio. Taking the fourth quarter of 2018 as an example, pharmaceutical sales were up 1.8% to €4.29bn ($4.7bn) and Xarelto made up €993m (+8.6%) of that figure. Eylea contributed €600m. Despite strong performances today, Bayer is expected to suffer a significant drop in revenue in 2024/2025 when both drugs will face generic competition.

Bernstein analysts expect Xarelto sales to fall to just €680m in 2030, while Eylea sales are expected to fall to €560m. Still, Bernstein analyst Wimal Kapadia recently toldIn Vivo’s sister publicationScrip that the products are likely to erode somewhat differently. Xarelto, a small molecule, will have multiple generics "and thus we should expect a very rapid decline, particularly in the US.” Eylea, being a biologic, is likely to face less generic competition and to decline somewhat more slowly. However, Kapadia noted that growth prior to patent expiry "is also a debate given the competitive environment," with products such as possible biosimilars to Roche's Lucentis (ranibizumab) and the arrival of new drugs with different mechanisms of action for wet age-related macular degeneration and diabetic macular edema. (Also see "Q4 Preview: How Will Bayer Survive Patent Cliff?" - Scrip, 13 Feb, 2019.)

Despite some concerns from analysts as to how Bayer will make up lost ground when two of its major profit makers face tough competition, Oelrich noted that Bayer still has some time to prepare its next big moves for the pharma portfolio. “At Bayer, we are in this wonderful moment in time where we still have four to five years until some of our big products go off patent, so we have time to direct other innovation modalities into the right place.” He highlighted that Xarelto was the world’s number four brand in the industry and the global market leader in volume terms. Despite patent expiration on the horizon, the blockbuster product could still see growth. Oelrich noted that with the launch of Xarelto in coronary artery disease (CAD) and peripheral artery disease (PAD), it is the only non-vitamin K antagonist oral anticoagulant (NOAC) available to new patient populations, which traditionally have not been treated with anticoagulants.

Changing With The Times

As part of its preparation for moving the business forward as older products lose their market power, Bayer announced in November 2018 that it would be cutting jobs and shaking things up through a company-wide restructuring. It plans to eliminate around 12,000 jobs worldwide by the end of 2021 – effecting around 10% of its total workforce. The announcement is part of a restructuring plan, designed to cut costs, streamline operations and more systematically shift pharmaceutical R&D toward external collaborations. The restructuring is the first strategic shake-up since Bayer’s major acquisition of the crop science giant Monsanto completed.SC124254 Bayer paid a huge $63bn to acquire the US firm, which specializes in genetically modified seeds and crop protection. The acquisition was subject to several antitrust assessments, but it finally closed in summer 2018. However, the integration is already causing Bayer a headache, as Monsanto faces several lawsuits related to health concerns about its glyphosate-based weed-killer products.

According to several reports from late last year, of the 12,000 job cuts, half will come from corporate and supporting functions, whereas another third will be in crop science as the Monsanto integration proceeds. An additional 1,250 positions are expected to be axed in the pharma unit, and around 1,100 jobs will be cut in Bayer’s consumer health division. Bayer’s CEO has repeatedly declined to say how many of the reductions will be in Germany.

Around 350 positions will be slashed at the company’s factor VIII facility in Wuppertal, Germany —which Bayer will shut down to centralize all production of recombinant factor VIII in Berkeley, CA. The big pharma is also planning to cut back internal capabilities of its pharma R&D operations. Savings here will go toward additional external collaborations to boost its pipeline.

Overall, Bayer is streamlining the business around pharma, crop science and consumer health, and as a result it is weighing options to exit the animal health sector. In March 2019, Bloomberg reported that Bayer would look to auction off its animal health unit in the second quarter. The business has been valued at around $9bn and the top potential bidders are predicted to be large private equity firms. Some of the names cropping up as possible buyers are Advent International, Blackstone Group LP, EQT Partners and Permira.

Multiple Brains Are Better Than One

Oelrich said he was “confident” in Bayer’s emerging clinical pipeline. He cited the company’s current collaborations and licensing arrangements as examples of how the firm would continue to access even more innovation. And he expects this strategy to be the future for Bayer’s pharma business.

"Collaboration is a truism in life. You are never going to get the same results if you keep everything to yourself." —Stefan Oelrich

Looking back, Xarelto (teamed with Johnson & Johnson) and Eylea (with Regeneron Pharmaceuticals Inc.) have proven that "we have a very good track record in partnering; we are known in the industry for this," Oelrich said. But in more recent times, the company has taken its partnering strategy into a new era, and collaboration will be the backbone of its pipeline progress.

“In my experience, collaboration is a truism in life. You are never going to get the same results if you keep everything to yourself as you would through a collaboration,” Oelrich toldIn Vivo. “Just look at how science develops now; it is no longer one smart guy in a white coat in one lab in a company or university. Knowledge has spread so much, you want and need to collaborate.” Bayer’s model had fundamentally changed, he said. “Thirty years ago, when I was starting out in this business, when you were a young researcher you would go into academia and then your goal would be to join a large company if you wanted to do research. Today, if you are a smart researcher you stay in academia and someone is going to fund you to build your own company and see your innovation through. You don’t have to go into a large company to do this.”

Oelrich noted that this change in thinking had helped to speed up drug development. “This change has sped up bringing innovations to patients because when researchers used to enter a structure that was more constrained the work was not as fast. When we collaborate or even if we are buying a company, we want to somewhat keep them at an arm’s length so that we don’t lose the dynamics and the speed that make those businesses work.”

Oelrich added that having credibility as a partner has been vital for Bayer’s ongoing strategy for externalized R&D. “Bayer has partnered almost everything it has, we are seen as one of the top partners in the industry. It is easy to build on something where you are very credible.”

Bayer has made a number of R&D deals in recent years and it has had a hand in creating new companies that are at the forefront when it comes to cell biology treatments and gene editing treatments. “We have today the nucleus to do much broader deals because we already own pieces of those companies that would allow us to extend deals if we wanted to at some point in time. Some of the products in these companies are advancing at greater speeds than we thought when we initially started the agreements,” Oelrich said. “There is a biopharmaceutical evolution happening in front of our eyes. There are potentially curative approaches coming forward for some diseases that today we not only treat insufficiently, but we also are spending money on with long chronic treatments with limited benefits.”

When it comes to partnering deals, Oelrich said he prefers to strike as soon as possible, to be involved from the earlier development stages. “I prefer to go as early as possible because otherwise you are taking shortcuts, and shortcuts end up costing a lot of money,” he said, adding that this approach and Bayer’s LEAPS program were already starting to pay off. “We hold licensing rights to some great technologies that represent great advancements in science.”

Under its LEAPS program, Bayer provides the first round of funding for start-up companies to develop revolutionary science that it hopes will lead to breakthroughs both in medicine and in crop science. With the program, the company talks of “leapfrogging” the incremental steps more often seen in medicine and instead jumping ahead to curing diseases outright. LEAPS is a new iteration of the Bayer Lifescience Center, which its head of innovation, Kemal Malik, first formed in 2015, and through it Bayer has committed to fund 10 new ventures internationally, focusing on the five breakthrough technologies that have application across different therapeutic and industrial areas: DNA editing, stems cells, microbiome, RNA activation and RNA inhibition.

The initiative uses equity as a tool to set up companies that will exist externally but alongside Bayer: the new firms are given a substantial series A investment and then left to incubate the research and take it forward without interference. (Also see "Giant LEAPS For Mankind: Bayer's Malik On Breaking The Mold In R&D" - In Vivo, 11 Apr, 2018.)

Bayer will continue to move with licensing deals and partnerships to grow its pipeline, avoiding the large merger and acquisition route in biopharma, Oelrich noted. “I was eight years with another company before Bayer; when I left this company it had just come through a tough period. How did it recover? It recovered because of its ability to innovate,” he said, talking about his former role at French big pharma Sanofi. “I think that is the recipe for success. If you look at some pharma companies – I won’t name names – that have grown by acquiring other companies, their value over the years has not changed that much.”

Focusing on recent development collaborations, Oelrich highlighted BlueRock Therapeutics as an example of a company developing potentially curative drugs. In December 2016, Bayer and Versant Ventures announced the launch of BlueRock, a next-generation regenerative medicine company that plans to develop best-in-class induced pluripotent stem cell (iPSC) therapies.“It is a really exciting company,” Oelrich said. “Some of their projects sound more like science fiction.”

Bayer and Versant committed $225m to BlueRock, representing the second largest-ever Series A financings for a biotech company. The funds were projected to give the start-up at least four years of runway and would allow it to advance a number of programs into the clinic, with an initial focus on cardiovascular diseases and neurodegenerative disorders.

“BlueRock has a stem cell project where they have programmed cells to be injected into the heart tissue and regrow you heart.Heart disease remains the number-one killer in the world. While we as an industry are treating this with good things, including products in Bayer’s own portfolio, developments are happening right now that will completely change how pharma works in this space. I am extremely proud to see that Bayer is very strong here,” Oelrich noted. He added that breakthrough science such as cell and gene therapy, in connection with digitalization of the life science sector, “will have a major impact across the entire value chain of our industry.”

The pharma industry is experiencing changes that will be disruptive to the discovery and development of therapies and cures; disruptive to industry structure and the roles of different players; and disruptive to the way patients manage their own care and the way care is delivered from ability to predict, diagnose, personalize, and monitor care. “Looking at cell and gene therapy in this context, it represents one of the scientific advancements that is set to revolutionize how we will treat diseases in the future,” Oelrich said. Along these lines, in 2016 Bayer was also involved in the creation of a new biotech in the CRISPR gene editing space. In December 2015, Bayer and CRISPR Therapeutics AG agreed to form a joint venture to discover, develop and commercialize new breakthrough therapeutics to cure blood disorders, blindness and congenital heart disease. The two parties formally closed the transaction in the first quarter of the following year – launching Casebia Therapeutics.

Casebia has access to gene editing technology from CRISPR Therapeutics in specific disease areas, as well as access to protein engineering expertise and relevant disease know-how through Bayer. Casebia, which is focused on using gene editing technologies to develop treatments for diseases by the editing of somatic cells, has a pipeline of preclinical assets across four key therapy areas.

Implementing Change

Oelrich joined Bayer from Sanofi, where he was previously responsible for the global diabetes and cardiovascular business. He replaced Bayer’s former pharma chief, Dieter Weinand, who ironically made a move to Sanofi.

Oelrich said that the business culture at Bayer was the biggest difference he had noticed when moving from one European pharma giant to another. Although the strategies are different, the challenges are the same. “You find capable people at all levels in all companies and that hasn’t changed,” he said. “I liked working for my previous company and I love working here. The conditions to being successful are equal everywhere; what can differ is the goals you set and the strategies you use to get there.”

When considering the most meaningful change he has affected so far as Bayer’s head of pharma, Oelrich said, “What I am aiming for, and I hope it shows, is that I remain very visible and I make people participate. I think I have brought with me a different communication style into the company and the feedback I am getting is very positive about that.”

He added that having the right culture is essential to getting the most out of colleagues. “If you have a smile on your face when doing your work, you will achieve different results. That is something I try to bring to the company every day and I am seeing that it works; I try to empower my teams.” Oelrich said this would be achieved by ensuring “we have the right people on board and that we are all working toward the same golden strategy.” While there is “always a financial goal and a clear strategy to go with that, I am trying to lift it slightly on the qualitative side to have a clear vision of what we want to be,” he said. “So, what does Bayer want to be in 10 years’ time? You can see a glimpse of the future Bayer as we look at emerging portfolios.”

Oelrich added, “We are at the crossroads when it comes to our innovation strategy as we previously relied more on our in-house technology. For example, Xarelto, the last big, big product, came from our own labs. But innovation is moving out of the labs of big companies and into the labs of start-ups. We are responding to the trend … As we have indicated, we will have fewer Bayer researchers three years from now, but we will have more researchers working with Bayer than we have now. We are taking a piece of our R&D budget and dedicating it to external research because that is where innovation is coming from.”

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