"At the time," says Higgins, "a lot of people, including people in Bayer, thought this was a highly risky strategy and one
we would come back to regret. In fact, eighteen months later, just like with the Roche acquisition, we looked smart, we moved
ahead of the count, and now are getting the benefit of that." Higgins says letting go of US primary care not only improved
Bayer's profitability, but also served as the catalyst that allowed for a closer focus on specialty products.
To shed its US primary care operation, Bayer took a relatively new tack. The company actively pursued partnerships—and knew
it had to be selective.
"We had to make sure that the company taking responsibility for our primary care products was really committed to ensuring
they maximized their value, because this led to short-term profitability. If our two assets—Avelox and Levitra—were not properly
developed, then over a five-year period of time we may have not achieved as much value as we could have done under a different
The search led them ultimately to Schering-Plough. "We were very careful in selecting a company that had a need to significantly
strengthen its primary-care organization and had the resources to do so. If you bring products like this into an organization
that's already got a pretty filled portfolio, you're probably going to lose out, because their own products make them more
money than in-licensed products. But Schering had a gap. They had also a good strategic fit. Avelox was highly complementary
to the Clarinex franchise; Clarinex gets promoted in the summer months, Avelox [an antibiotic used to treat respiratory infections]
in the winter."
The deal with Schering-Plough is performance-based. Bayer is granting a license on the products for the term of their patents.
Schering makes the bulk of its profit by ensuring that the products sell more than when they were transferred. "We get the
early gains, but they get the majority of the benefit of the up side," says Higgins. "If they execute with Avelox and Levitra,
over time it should be a very good deal for them. But it was clearly a deal where we were looking for short-term benefit and
were prepared to trade off some of the longer-term benefit."
For many at Bayer, the hard part about moving out of primary care was leaving behind Bayer's real heritage business—anti-infectives.
"That was not a very popular decision within Bayer, but the right decision," says Higgins. "Exiting any of these businesses
is emotional. You have people who come and tell you with great belief—and there's maybe some reality in it—they've been working
on something for five, seven, ten years and they're just a week away from something really significant, and you're worried
about throwing the baby out with the bathwater."
It's not unusual for pharmaceutical companies to simply walk away from rather than sell or license out products they have
decided not to market. "We have a history of that at Bayer," he says. "It's a clean-hands approach, and I understand why people
do it, but it's not smart."
Fund Investment With Non-US Primary Care
Bayer may be moving away from primary care products in the United States, but it is sticking with them elsewhere in the world.
For example, in January 2005, it bought back from GlaxoSmithKline (GSK) co-promotion rights to the erectile dysfunction drug
Levitra in a number of non-US markets. More recently it purchased from GSK the European rights to Boehringer-Ingelheim's blood-pressure
drug Pritor (telmisartan).
Higgins, however, makes an important distinction between Bayer's old and new approach to primary care. In the past, at many
companies, constantly rising sales and prices for primary care drugs meant that tight financial controls often went by the
wayside. Today, Higgins is looking for quick profits and financial discipline from the primary care side of the business.