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Bayer’s Nantucket Sleighride
After Baycol bombs, Cipro soars amid anthrax panic
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Business New Haven
10/29/2001
By: Mitchell Young
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The folks at Bayer Corp.'s North American pharmaceutical division headquarters in West Haven might want to consider holding their next corporate retreat at Lake Compounce Amusement Park. The park's infamous BoulderDash roller-coaster is tons of fun - something the Bayer people need in greater quantities right about now. But not even the BoulderDash is likely to provide as many twists and turns as those Bayer executives have faced in the past 60 days.
Just three weeks ago, Bayer announced 125 local job cuts in the wake of the withdrawal of Baycol from the marketplace. Now, fueled by what has rapidly ballooned into an international anthrax panic, production of the company's leading drug - the potent antibiotic Cipro - is being tripled.
Bayer is running Cipro production lines 24/7 amid calls for ever greater output. Production is expected to skyrocket from 60 million to 200 million tablets over the next 90 days.
Bayer's largest-selling compound, Cipro generated $1.5 billion in sales in 1999. That was before it became a household name worldwide. The drug is one of the few antibiotics effective in treating the more virulent forms of anthrax, and was initially identified as the only one approved by the U.S. Food & Drug Administration (FDA) for treating the disease. The FDA, however, has also approved penicillin and doxsycycline - both efficacious in treating the particular strains of anthrax identified in the most recent attacks.
Cipro is protected under patent until 2003. However, U.S. Sen. Charles Schumer (D-N.Y.) proposed earlier this month that generic pharmaceutical manufacturers be permitted to produce the drug to increase its availability.
Bayer responded by saying it had “filled every order to date,” but there have been delays experienced by consumers in New York due to surging demand. The company also said it would re-open a previously closed plant in Germany as well as outsource production to rivals, if necessary.
Retail pricing of the drug - as much as $4 to $5 per tablet - has also engendered criticism of the company and may be a factor in Shumer's initial call to expedite generic production. New York radio personality Don Imus on October 17 called the company a “war criminal for selling these pills for $7 or $8.”
Not quite: According to the Associated Press, the U.S. government has been paying $1.83 for each 500-milligram tablet. According to the Centers for Disease Control, a 60-day regimen is required to assure the defeat of the disease in an infected individual. Some reports indicate that most doctors familiar with treatments change to the other anti-biotics after gaining the upper hand on the bacteria. Bayer said that it would maintain Cipro pricing at levels in effect before September 11.
In reality, Cipro has been provided to treat the disease in a dozen individuals who have actually contracted anthrax since the first case appeared in 61-year-old American Media photo editor Bob Stevens in Boca Raton, Fla. Stevens died October 3. Two postal workers infected in Washington, DC have also died of inhalation Anthrax.
Cipro has also been provided to several hundred individuals “exposed” to the disease as a preventive measure. Tens of thousands of others however (including Imus) have decided to purchase the antibiotic themselves. Many people without any exposure to the disease are presumed by health officials to be taking the drug as well.
U.S. Health & Human Services Secretary Thomas Thompson said on October 17 that he would ask Congress for $1.5 billion to increase emergency drug stockpiles - including $600 million more specifically for Cipro. Thompson has said that the U.S. had stockpiled sufficient quantities of the compound to treat two million people for 60 days - and expected to increase that base to 12 million with the additional funds. The Canadian government after threatening to purchase the drug from a generic manufacturer, again ostensibly due to supply issues, reversed course and has agreed to purchase it from Bayer at a cost of $1.30 per table. Thompson under pressure from Capitol Hill low-balled Bayer and demanded a price of under $1 per pill and at presstime Bayer had accepted.
The atmosphere in West Haven was far calmer August 2 when Bayer unveiled its new chemistry building, which will house 125 scientists concentrating on drug development for cancer, diabetes and obesity, effectively doubling West Haven's research capabilities. Company executives announced that Bayer AG (the Leverkusen, Germany-based parent of Bayer Pharmaceutical) would list its shares on the New York Stock Exchange beginning September 26.
Less than a week later Bayer stock (listed on Germany's DAX exchange) plunged 20 percent following the recall by the company of its cholesterol-lowering drug Baycol, in the wake of a number of patient deaths. Baycol sales were expected to represented approximately 20 to 25 percent of Bayer Pharmaceutical sales, yielding almost $800 million annually for Baycol alone.
The following day Bayer AG announced a 45-percent drop in second-quarter operating profits and announced plans to pare 5,000 jobs. In West Haven, 125 job cuts were eventually announced, to be accomplished through suspension of a third shift, and attrition.
Another roller-coaster dip came two weeks later, on August 14, when the company that invented aspirin said it was reviewing options for its flagship drug business, including a joint venture or outright sale of its pharma unit. The Wall Street Journal cited Bristol-Myers Squibb Co. and the Switzerland-based Novartis AG as likely suitors. However, a number of industry analysts argued that minus Baycol sales, the unit might not prove terribly attractive.
No offers were made public, indeed, and on August 16 the company postponed its NYSE debut until next February. Explained Bayer Chairman Manfred Schneider: “The climate for our stock market listing has altered considerably over the past few days. We don't want to list our shares on what is for us the world's most important capital market without being able to give convincing answers to the questions that have been raised.”
Some of those answers began to emerge on September 13 - two days after the terrorist attacks that would once again alter Bayer's immediate future. That day, Bayer AG's Supervisory Board announced that it would “retain [its] pharmaceutical activities as a core business. To this end, the company plans to transfer its current health-care business segment into an independent corporate unit within the Bayer Group”.
Swelling demand for Cipro is likely to generate hundreds of millions of dollars of additional sales for the new health-care subsidiary. According to Reuters, Bayer expects to generate about $450 million for this initial increase in production.
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