Monsanto bid may mean Bayer will cut pharma R&D spending, says analyst

By Dan Stanton

- Last updated on GMT

Image: iStock/pichet_w
Image: iStock/pichet_w

Related tags Medicine Pharmaceutical industry

The proposed $62bn merger with agrochemical firm Monsanto would jeopardise Bayer’s pharmaceutical business, according to a BMI Research analyst.

Earlier this month, Germany’s Bayer announced it was in discussions with agrochemical and agricultural biotech firm Monsanto for a proposed $62bn (€56bn) megamerger.

While Bayer says this will “create a leading integrated agriculture business,”​ such a deal would be detrimental to the firm’s core pharma business, according to Craig Smith, pharmaceuticals and healthcare analyst at BMI Research.

“If the deal with Monsanto goes ahead, over half of Bayer's business will represent agribusiness, threatening the company's key growth drivers - namely pharmaceuticals and consumer healthcare,”​ he told this publication.

“As such, Bayer could possibly be diverting funds away from R&D activities for its pharmaceuticals and consumer healthcare divisions. Given that Bayer already devotes marginally smaller funds to R&D than other multinational pharmaceutical companies, this deal could significantly weaken their capacity to grow within the pharmaceuticals space.”

He added Bayer’s position in the consumer healthcare space has already been eroded by increased levels of competition from Big Pharma firms like GSK, Sanofi, Pfizer, J&J, and Novartis which are “making significant inroads in the industry.”

Bayer did not respond when asked for a reaction to Smith's comments.


Such a deal would go against the trend in the pharma industry of moving away from diversified business units in favour of consolidation within specific therapeutic areas, he continued.

Examples include Abbott Labs spinning off AbbVie in 2013​, Baxter forming Baxalta in 2015​, and continued speculation​ that pharma giant Pfizer will split up later this year.

However, if the Bayer/Monsanto deal goes through it is very unlikely it will encourage other pharma companies to follow a similar strategy, Smith said.

“This potential deal between Bayer and Monsanto represents an unusual strategy from a multinational drugmaker perspective.

“As such, it is unlikely for other pharmaceutical companies to follow suit in such a way that could threaten their core growth drivers - instead their focus will remain on high profit margins areas.”

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