Frankfurt With the huge success in the development of the Covid vaccine, the Mainz-based biotech company Biontech has suddenly risen to become one of the largest German pharmaceutical manufacturers. From a global perspective, too, the newcomer ranks in the midfield of the industry.
The trio of established German corporations Bayer, Boehringer Ingelheim and Merck, on the other hand, have struggled to maintain their international position in recent years. Measured by the sales of the industry, as estimated by the British analysis company Evaluate Pharma or the market research company Iqvia, it has recently lost market share slightly. In total, the companies still accounted for around 4.5 percent of global pharmaceutical sales in 2021, around 0.5 percentage points less than in 2017.
As the global number 16, Bayer is the largest German pharmaceutical manufacturer. But the gap to the leading corporations has also grown due to large mergers. At the beginning of the last decade, Bayer was still around six billion dollars behind the number ten in the industry in terms of sales, this gap is now almost twelve billion dollars.
Pharmaceutical companies form alliances for new cancer therapies
The companies are therefore investing in new alliances to strengthen their research programs and longer-term perspectives. Merck agreed the most recent deal with Mersana Therapeutics shortly before Christmas. In partnership with the US biotech company, the Darmstadt-based Dax group wants to develop two novel cancer drugs based on so-called antibody-drug conjugates.
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The aim is to combine antibodies with an immune-stimulating substance and to target them specifically to the tumor tissue. Merck will pay Mersana $30 million directly for the collaboration and has also committed up to $800 million in contingent payments.
A few days earlier, Boehringer expanded an existing alliance with the US company Click Therapeutics, which aims to develop digital, app-based therapies for schizophrenia. The new deal includes milestone payments of up to $460 million, in addition to potential payments of up to $500 million already committed by Boehringer in September.
Bayer, in turn, sealed a partnership with Tavros Therapeutics, also from the USA, via its subsidiary Vividion in mid-October for the development of novel cancer therapies. Bayer paid $17 million directly to Tavros in this case, with milestone payments in the event of success reaching more than $900 million.
In the previous two years, Bayer had already concluded a good two dozen such partnerships and smaller acquisitions. Among other things, the Leverkusen-based company acquired the active ingredient specialist Vividion and greatly expanded research in the field of gene and cell therapies.
Limited risk tolerance
The new alliances exemplify the research and development strategies of the three major German pharmaceutical companies. For example, while the US group is buying Amgen for $28 billion, they are focusing on smaller takeovers and alliances that include comparatively low direct payments, but in some cases extensive success fees.
This approach offers the great advantage that the financial risks are kept within limits. On the other hand, it mainly involves projects that are still in the preclinical research phase. In most cases, it will be years before the resulting potential becomes visible on the balance sheet. For the time being, the deals have hardly any impact on the operative business.
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In this regard, the current picture is ambiguous. Although the leading German pharmaceutical companies are developing solidly, they cannot quite keep up with global market developments. In the current year, too, the three companies are likely to lose further market share overall. Because on a global level, the pharmaceutical industry is receiving another boost from high Covid sales, among other things.
On a dollar basis, the top 30 companies in the industry reported aggregate sales growth of a good six percent for the first nine months. Adjusted for the strong appreciation of the dollar, real industry growth should be around eleven percent in the first three quarters.
Patent expirations slow growth prospects
On the German side, only the newly promoted Biontech is involved in the Covid business. The established German pharmaceutical giants, on the other hand, are not represented in this field – unlike Pfizer, Merck & Co, Astra-Zeneca and Glaxo-Smithkline. On a dollar basis, they posted only stagnant revenues overall. Adjusted for currency effects, they grew by an average of a good six percent in the first nine months.
At 11.8 percent, Boehringer grew significantly faster than Bayer and Merck in the first half of the year. The German pharmaceutical company, which is not listed on the stock exchange, is currently benefiting above all from strong business with the diabetes drug Jardiance, which has also shown positive effects against heart failure and kidney failure in several large studies.
In addition, Boehringer is posting high and rising licensing income from the psoriasis drug Skyrizi, which is sold by the US group Abbvie. On the other hand, sales of old products such as the respiratory drug Spiriva are shrinking. And from 2027, the first patents for the blockbuster Jardiance will expire in the USA.
In the past two years, Bayer has achieved important approvals with the cancer drug Nubeqa and the kidney drug Kirendia. In addition, a study with a long-acting version of the eye drug Eylea provided positive data.
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All of this should cushion the forthcoming patent expiration for the main product Xarelto, but not completely avoid a dip in growth. In order to maintain its position in the industry, Bayer needs further approvals from the newly started research projects and alliances in the medium term.
The situation is similar for the Merck Group, whose pharmaceuticals division is currently benefiting from the new approval of the cancer drug Tepmetko, an extended approval for the cancer immune drug Bavencio and the multiple sclerosis drug Mavenclad, which was launched a few years ago. On the other hand, the group still does more than half of its business with patent-free old products, which can easily come under price pressure.
For the coming years, Merck is forecasting growth in the mid-single-digit percentage range for its pharmaceuticals business. That should just be enough to keep up with the expected global market development.
In addition, Merck has experienced a number of setbacks in pharmaceutical research in recent years. This is also why the group has to strengthen its research pipeline with additional deals.
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