Bayer May Cut U.S. Sales Force After Cipro Generics Enter Market

Bayer is looking to make further cuts in its U.S. pharmaceutical division following entry of Cipro generics, Bayer Health Care Chairman Arthur Higgins said during an earnings conference Aug. 31

"We are on target and continue to focus very strongly on reducing the cost basis in our pharmaceutical business, particularly in the U.S.," Higgins said.

"We are conscious of the fact that post the genericization of Cipro, we have to look at our cost basis in the U.S.," Higgins said. "As I hinted, you will hear more details in the future as to what we would prescribe as a sustainable strategy for the pharmaceutical business in the U.S."

"Sales and marketing organizations and primary care are variable and not a fixed expense," Higgins said. "When you have the products, you build the organization. When you do not have the products, you ruthlessly downsize that organization."

Pediatric exclusivity for Cipro expired June 9. FDA approved 13 ciprofloxacin ANDAs that day (¹ 'The Pink Sheet' June 14, 2004, In Brief). An "authorized" generic of Cipro had been marketed by Barr since June 2003 (² 'The Pink Sheet' June 16, 2003, In Brief).

Second quarter sales for Cipro were down 54.4% to €202 mil. ($245.7 mil.). Bayer's pharmaceuticals/ biologics sales for the second quarter were down 12.6% to €1.04 bil.

The decline was largely due to the loss of Cipro in the U.S., Higgins noted. The company did not report quarterly figures for U.S. pharma sales, but Bayer said that pharma/bio sales outside the U.S. actually grew during the quarter.

The U.S. performance also reflects a disappointing early showing by the erectile dysfunction therapy Levitra (vardenafil). Second quarter sales for the drug were €40 mil. ($49 mil.).

Bayer believes that one key to improving Levitra's performance will be a labeling change to remove a contraindication for use in combination with alpha blockers.

"We are working hard to remove the contraindication labeling which we have with alpha blockers in the U.S.," Higgins said. "This is important for urologists who are also prescribing for many of their patients alpha blockers for benign prostatic hyperplasia."

The contraindication is not included in labeling for Pfizer's market-leading Viagra (sildenafil). The more recently launched Lilly/Icos brand Cialis (tadalafil) is contraindicated with most alpha blockers, but not Flomax (tamsulosin).

Pfizer appears to be countering the launches effectively, Higgins said. "Both Levitra and Cialis, after early gains, are finding it more difficult to displace Viagra," he said.

According to Higgins, the second quarter worldwide market share in the category breaks down as follows: Viagra (71.3%), Cialis (17.7%) and Levitra (11%). Viagra lost about five points during the quarter, with Cialis picking up 3.7 share points. Levitra moved up just over one percentage point in market share.

Levitra's performance also reflects a growth slowdown in the ED market in general due in part to active sampling programs for the top three products.

"The global erectile dysfunction market is growing slower than our projections, and this is particularly true in the U.S.," Higgins said. The U.S. erectile dysfunction market grew 11.4% during the second quarter, down from 16.4% during the first quarter.

"The reasons for this are multi-factorial and are difficult to interpret due to the impact of very significant sampling and various patient challenge programs, which, I should comment, were started by Bayer and have now been followed by Lilly and Pfizer," Higgins said. "This has clearly dampened the market."

Bayer initiated the challenge programs with ads offering a free trial of Levitra that aired during the Super Bowl (³ (Also see "Super Bowl Ads Pit Levitra Against Cialis; Viagra Stays On The Sidelines" - Pink Sheet, 9 Feb, 2004.), p. 7).

Lilly/Icos reported prescription growth of 13.2% in the PDE-5 inhibitor market for the first half of 2004. Cialis sales during the second quarter reached $50 mil. in the U.S., and topped $137 mil. worldwide.

Bayer is aiming to counter the growth slowdown with a direct-to-consumer marketing campaign that launched in April. The ad campaign features a woman discussing her partner's experience with Levitra (⁴ (Also see "Bayer/GSK Levitra “Product And Use” TV Ad Stars Woman With A “Secret”" - Pink Sheet, 19 Apr, 2004.), p. 32).

"We are also seeing that Cialis and now Viagra are now trying to convert their clinical benefits into a more appealing consumer message. Again, we like to believe we were pioneers in this area," Higgins noted.

Bayer remains "convinced that Levitra's core benefits of 'rapid and reliable' should enable it to compete effectively in this large market," Higgins said.

"I would like to remind you that Levitra has a patent that protects this asset through 2018, and that we see this new market not as a sprint but a marathon."

One bright spot in Bayer's pharmaceutical portfolio was the performance of Kogenate . Sales of the Factor VIII brand in the second quarter were €135 mil. ($164 mil.), up 27.4%.

Bayer projects long term growth to be driven by increased prophylactic use. Kogenate sales have suffered in the past because of production difficulties, including an FDA 483-report citing good manufacturing practices violations (⁵ (Also see "Bayer Kogenate FS Supply To Reach 80% Of 2000 Factor VIII Levels By 2002" - Pink Sheet, 20 Aug, 2001.), p. 19).

Higgins, who is leading the restructuring of the pharmaceutical division, is a relative newcomer to Bayer.

Higgins joined Bayer in May, succeeding Rolf Classon. Higgins previously served as Enzon CEO, and as Abbott's Pharmaceutical president before that.

Bayer decided to seek a joint venture for its pharma business following the 2001 withdrawal of the cholesterol drug Baycol (⁶ (Also see "Bayer Sheds R&D Projects Ahead Of Joint Venture, Is Flexible On Control" - Pink Sheet, 18 Nov, 2002.), p. 17).

After failing to find a "white knight" partner to save its troubled drug business, Bayer decided to spin-off portions of its polymer and chemical divisions, initiate a headcount reduction program aimed at eliminating 14,000 positions, and restructure its drug division as a mid-sized pharmaceutical company.

Bayer Health Care narrowed its focus to four therapeutic areas: anti-infectives, cardiovascular, urology and oncology (⁷ (Also see "Bayer Layoffs, Spin-Offs Will Leave “Mid-Sized” European Company" - Pink Sheet, 17 Nov, 2003.), p. 29).

Bayer recently acquired Roche OTC business for $3 bil., suggesting, at least for the near term, that the health care division's primary focus is consumer rather than pharmaceutical products (⁸ (Also see "Xenical OTC Switch Plans Underway; GSK Pays $100 Mil. For Rights" - Pink Sheet, 26 Jul, 2004.), p. 30).

Higgins maintained that Bayer will be able to rebuild its U.S. prescription sales infrastructure when it has the new product flow to support it.

"This is a concept that I believe we have to understand in the pharmaceutical industry, particularly in respect to the U.S. where you can build a superior primary care infrastructure in two to three years than you probably had historically because essentially it's a mercenary field force."

"People go where the action is, and if you have a Factor Xa, for example, which is a highly exciting product that can be a blockbuster, you can scale up that organization in 12 to 24 months," Higgins said.

Bayer's near-term pipeline projects will likely require specialty sales forces after entering the market, Higgins indicated.

"We'll have more emphasis on driving our mix into higher profit specialty products that require lower investment, which means more hospital specialist base than primary care, but we're not exiting primary care. We believe we know how to do both," Higgins said.

Bayer projects a 2008 launch for its oral Factor Xa inhibitor for thrombosis, one of three products of the restructured pharmaceutical division the company highlighted during the investor presentation.

The other two products are repinotan for the treatment of stroke, currently in Phase IIb, and the oncologic BAY 43-9006.

Repinotan development has been slowed by discussions with FDA over optimal dosing of the stroke treatment (⁹ (Also see "Bayer Repinotan Development Slowed By Dosing Issue, FDA Documents Show" - Pink Sheet, 24 Nov, 2003.), p. 26).

Bayer may submit an NDA for the RAF inhibitor BAY 43-9006 using Phase II data in renal carcinoma, which were presented during the American Society of Clinical Oncology annual meeting in June. BAY 43-9006 is currently in Phase III. The company is projecting a 2006 launch for BAY 43-9006.