Bayer would have been better off saying its main goal is simply to make more money, rather than blandly state that the top priority of its healthcare unit is "to successfully commercialise new pharmaceutical products". The German company's far-from-insightful goal was front and centre of the drug and chemical maker's annual results on Tuesday.
It was all part of an announcement that was careful to play down the hopes of recovery signalled in rival BASF's annual results last week. Well at least that worked. In spite of a 15 per cent jump in earnings per share excluding one-offs, Bayer's dreary guidance meant that investors left the share price unchanged.
No one can blame chairman Marijn Dekkers for presenting the outlook this way. After all, he has only been in the job for about 15 months, so some conservatism is to be expected. Further, earnings before interest, tax, depreciation and amortisation in the fourth quarter fell by 6 per cent compared with the previous year after increased industry capacity squeezed margins in the company's chemicals and materials division.
But the company's bright spots are underrated. The healthcare division, which generates half of revenues, has good prospects. On Monday, the U.S. Food and Drug Administration granted its anticoagulant drug, Xarelto, a priority review to treat an additional condition. And although the drug's marginal sales this year will not be material even if it is approved within the next six months, once fully distributed it could pull in more than €2-billion a year. That would add about 5 per cent to the group's 2011 revenues. The company also has three other promising drugs that could contribute as much again.
Bayer's shares trade in line with the market at 11 times expected earnings. Assuming that its drug plans remain on track, there could be more value in the company than Mr. Dekkers is letting on.