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Stock Analyst Update

Bayer Posts Solid Q1 as Drug Pipeline Advances

We believe the favorable pricing driving the strong performance in the quarter will fade later in the year.


Largely buoyed by excellent crop science growth, Bayer (BAYRY) reported strong first-quarter results ahead of our expectations, but we don’t expect any major changes to our fair value estimate as we believe the favorable pricing driving the strong performance in the quarter will fade later in the year. Nevertheless, we continue to view the stock as undervalued, with the market underappreciating the firm’s growth potential through patent losses and overly concerned about the glyphosate litigation. Bayer has already taken reserves to cover the downside in the glyphosate legal process, and we don’t see much more negative pressure; if the Solicitor General input to the Supreme Court is favorable, we could see less legal payouts by Bayer.

In the quarter, strong crop science pricing (largely in glyphosate-related products) helped lift the segment’s growth to 22%, but we expect this robust growth to slow significantly later in the year as more global supply comes back online. Nevertheless, we expect Bayer will be able to largely pass along increased supply chain costs and inflationary pressures due to the firm’s innovative product portfolio.

In healthcare, new product sales helped offset discounts in China to cardiovascular drug Xarelto. The solid performance of the new drugs (especially cancer drug Nubeqa) and significant advancements in the pipeline increasingly support Bayer’s ability to manage through the 2026-27 patent losses for Xarelto (Bayer’s top drug, representing close to 10% of total sales) and support the firm’s wide moat. With recently reported excellent phase 2 data (67% reduction in bleeding risk versus best-in-class drug Eliquis) for a potential next-generation Xarelto called asundexian, the firm is lining up a potential extension of sales in this important therapeutic area, but we still need to see phase 3 data before adding significant sales of this drug into our valuation model. We expect a phase 3 asundexian trial to start in late 2022.

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Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.