Bayer's Turnaround: A Challenging Path to Profitability

Bayer AG, the German multinational pharmaceutical and life sciences company, has been grappling with a series of challenges as it works towards a turnaround in its financial performance. In a recent update, the company warned of lower earnings, citing a range of factors that have impacted its bottom line. This article explores the key challenges Bayer faces and the steps it is taking to address them.



Agricultural Market Dynamics and Crop Science Performance

One of the primary challenges Bayer faces is the weaker-than-anticipated performance of the agricultural market, particularly in Latin America. This has led to reduced market dynamics and lower growth expectations for the consumer health market. As a result, the company has revised its Group forecast for EBITDA before special items, which is now expected to be between EUR 10.4B and EUR 10.7B, down from the previous forecast of between EUR 10.7B and EUR 11.3B (Leverkusen, November 12, 2024).

The Crop Science division, a key driver of Bayer's revenue, has also faced pricing pressure in the crop protection business and regulatory challenges. The company has lowered its 2024 targets for this division and is cautious about the agricultural market environment for 2025. The division is expected to generate currency- and portfolio-adjusted sales growth of between minus 3% and minus 1%, with an EBITDA margin before special items of between 18% and 20% (Leverkusen, November 12, 2024).

Patent Loss Impact in Pharmaceuticals

Bayer is also grappling with the loss of exclusivity impact on the oral anticoagulant Xarelto™, which is expected to accelerate in 2025. To mitigate this impact, the company is targeting market launches for acoramidis and elinzanetant in 2025 (Leverkusen, March 5, 2025). However, the company is cautious about the potential impact on the EBITDA margin before special items, which is expected to be greater than in the current year.

Impairment Losses and US Litigations

Bayer has reported impairment losses, primarily attributable to the Crop Science Division, which have affected its earnings. Net special charges of 5.507 billion euros in 2024 were mainly due to these impairment losses (Leverkusen, March 5, 2025). Additionally, the company is actively working to address US litigations, both inside and outside the courtroom. Bayer is committed to significantly containing the related risks by the end of 2026 (Leverkusen, March 5, 2025).



Bayer's Plan to Boost Profitability at Crop Science

To address these challenges, Bayer has developed a comprehensive plan to boost profitability at Crop Science. This plan centers around key measures regarding the product portfolio, research and development, production, commercial and enabling functions, totaling more than one billion euros in annual earnings contributions by 2029. The plan also includes a far-reaching cash productivity program. By 2029, Bayer is targeting above-market growth for Crop Science, with more than 3.5 billion euros of incremental sales from innovation. Additionally, the division is targeting an EBITDA margin before special items in the mid-20s percentage by the same year.

Dynamic Shared Ownership Operating Model

Bayer's new operating model, Dynamic Shared Ownership (DSO), plays a significant role in its turnaround strategy. This model enables faster innovation, better customer focus, and increased efficiency. DSO is expected to contribute to the company's financial performance by driving faster innovation, cost savings, improved customer focus, and world-leading, faster-to-market innovations. The new operating model is expected to deliver savings of 800 million euros for 2025, on top of the approximately 500 million euros in savings achieved in 2024 (Source: Bayer's Financial News Conference, March 5, 2025).

In conclusion, Bayer faces a challenging path to profitability as it works to address a range of issues, including agricultural market dynamics, patent loss impact in Pharmaceuticals, impairment losses, and US litigations. The company's plan to boost profitability at Crop Science and the implementation of the Dynamic Shared Ownership operating model are key steps in its turnaround efforts. As Bayer continues to navigate these challenges, investors will be closely watching the company's progress and the potential impact on its financial performance.