Bayer and J&J are similar because both are drug companies that also sell non-prescription consumer health products and other non-drug brands (medical devices at J&J, chemicals at Bayer). Bayer only gets about $2 in revenues for every dollar it spends on sales, marketing and admin costs, a drug company's major quarterly expense. J&J, however, gets more than $3 for its investment:
Worse, J&J is generally becoming more efficient over time (despite its troubles with Tylenol) whereas Bayer is becoming slightly less efficient. Dekker knows this, which is why he explained the job losses with this statement:
I am convinced that with more innovation and less administration, Bayer can become a better and faster company.You cannot cut your way to greatness, however. Bayer's fortunes are greatly dependent on the launch of its new blood-thinner, Xarelto:
Bayer is pinning hopes on its anti-blood-clotting pill Xarelto, which could generate more then 2 billion euros in annual sales and which was shown this week to have mass-market potential in a late-stage trialThe blood thinner category, which already has competition from warfarin, a cheap generic, is becoming increasingly crowded. Eight companies are vying to launch new blood-thinners, according to Reuters. It's also a category in which high hopes sometimes do not pan out. Eli Lilly (LLY)'s antiplatelet drug Effient was expected to be a billion-dollar seller, but its sales are insignificant. While Dekker can control his costs by making these layoffs, he cannot control whether Xarelto is a success. Which is why Bayer's strategy for success relies as much upon crossed fingers as it does on "more innovation and less administration."
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