Bayer plans to ratchet up its R&D spend and chase down some deals

Bayer CEO Marijn Dekkers

A rejuvenated R&D shop has given Bayer a spate of potential blockbusters, and CEO Marijn Dekkers wants to see more where that came from. The German drugmaker is planning to substantially increase its research budget over the next three years and set aside a boatload of cash for M&A.

In Friday's annual report, Dekkers said Bayer will spend about $15.5 billion on R&D from 2014 through 2016, which, on average, would be a 16% annual jump over last year's $4.4 billion. Furthermore, the CEO plans to set aside roughly $10 billion for dealmaking over the same period, money Dekkers told analysts on a conference call would go toward small and mid-sized acquisitions in life sciences.

The focus on R&D spending stands in contrast to many in Big Pharma and reflects Bayer's goal of strengthening "our position as a world-class innovation company," Dekkers said. And, unlike, say, Eli Lilly ($LLY), which is spending north of $5 billion on R&D despite a years-long dry run, Dekkers and company have a lot to show for their liberal budgeting.

Last year, Bayer and then-partner, now-subsidiary Algeta won FDA approval for the prostate cancer drug Xofigo, for which sales could top out at around $1.5 billion, analysts say. The year before, the drugmaker swayed regulators with the colorectal cancer treatment Stivarga, adding to recent approvals for anticoagulant Xarelto, hypertension treatment Adempas and Regeneron's ($REGN) Eylea, on which Bayer has international rights. Combined, those 5 drugs brought in about $2.1 billion last year, Bayer said, and the company expects the group to eventually peak at roughly $10.3 billion in annual sales.

And the next generation looks promising, too. At the top of Bayer's list of prospects is copanlisib, a Phase II PI3k inhibitor for lymphoma, followed by the Phase II cardiology drugs finerenone and BAY 1021189. Meanwhile, the well-differentiated conglomerate is working through a novel effort to pool its intellectual capital, launching a program called Nimbus in which its researchers in crop science and human and animal drug development will share ideas in a hybrid R&D effort.

- here's the release from Bayer

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