Astrazeneca sacrificed over £21billion of revenues by selling its Covid vaccine at no profit

Early in the Covid-19 pandemic, AstraZeneca received substantial praise for agreeing to make the “oxford vaccine” available at cost. However, as countries have struggle to struggled to secure sufficient supply the conversation has soured.

Commenting on the situation, Novasecta’s managing partner John Rountree, characterised Astrazeneca’s decision as ‘courageous’, then expanded on the challenge of bringing a new medicine to market at breakneck speed ‘It is not easy to produce vaccines and yet they have managed to do this very fast. Inevitably, it will not all go smoothly all the way but that is normal. And even now when they are getting some bad publicity, they are taking it in their stride and being very professional.’

As politicians continue to deflect blame onto one another, regulators, and companies let’s hope that the early signals of vaccine nationalism subside as more vaccines and supply comes on stream.

“Vaccine nationalism” is turning the search for a Covid-19 cure into an arms race, which will ultimately damage the economy and public health, experts have warned.

Despite these warnings, John Rountree is optimistic about vaccine access. John told CNBC, distribution and supply challenges are “much more solvable” than actually finding a vaccine that works and “we’re a long way” from having an effective vaccine.

“Equitable access requires collaboration between pharma companies, governments, and patient-centric organizations, but I don’t have any doubt that it will be solved,” John said via telephone. “Pharma companies have interests in profitability for their shareholders. Governments have interests in having people treated. We’re all in the same game, so it will happen.”

Likening the vaccine development landscape to the space race of the 20th century, John warned that vast government investments would not miraculously pave the way to an effective vaccine.

“Politicians can put aggressive timelines in, and it lends itself to putting a man on the moon,” he said. “In the end, you’re dealing with biology, which is a much more difficult problem than the engineering challenge of sending a man to the moon. And biology doesn’t follow timelines.”

There are currently at least 160 potential Covid-19 vaccines being tested around the world, according to the WHO.

In light of the announcement of AstraZeneca’s preliminary approach to Gilead Sciences, John Rountree, was invited on CNBC to discuss the merits of the merger.

John discusses the merits of potential collaboration, highlighting existing collaborations in the industry, including AstraZeneca’s collaboration with The University of Oxford.

Considering the potential merger, John sides with analysts to question the merits of such a deal.

One of the big concerns of a mega merger is the potential impact on innovation, and John discusses some of the pitfalls R&D might face if the two companies do merge.

Discover our insight in R&D and how companies can achieve breakthrough innovation.

AstraZeneca has made a preliminary approach to Gilead Sciences.

The suggestion of a blockbuster pharma merger might be a sign that the industry is getting back to something resembling business as usual. Even successful Covid-19 treatments or vaccines are unlikely to be big moneymakers, meaning drugmakers face the return of old pressures to gain scale and boost innovation, or risk becoming targets.

Speculating on the deal, John Rountree, said “Perhaps AstraZeneca has a belief that antivirals are going to be a much more important domain than previously believed, owing to the recent Covid-19 tragedy, and snapping up one of the clear leaders in that field will give it a platform for future growth beyond oncology”

It will be interesting to see what AstraZeneca offers and whether pharma M&A is still too expensive.

In light of the announcement of Novartis’ and Reckitt Benckiser’s (RB) Q3 results, John Rountree, was invited on CNBC to discuss how their differing approaches affect their Q3 results respectively.

John highlights the continued strategic drive towards an innovative medicine focus at Novartis, with the spin off of Alcon earlier this year and GlaxoSmithKline’s acquisition of Novartis’ stake in their Consumer Healthcare Joint Venture, in 2018.

John touches upon several of the challenges at RB and how its Consumer Health focus is a tougher business model, with tighter margins and higher competition in local markets.

Margins are a topic that is in increasingly on the minds of pharma executives and an issue we have highlighted before.

In terms of where the two companies are on their journey towards strategic focus they again differ. RB has appointed a new CEO and CFO in 2019 but the change in leadership will likely only be felt in the medium to long term. This is where Novartis is now seeing rewards, as the 2017 appointment of CEO Vasant Narasimhan now begins to take effect and his strategic focus delivers results.

Sanofi has appointed a new CEO, Paul Hudson, to revive its slumping stock price and a pipeline that’s been slow to deliver.

Hudson highlighted a few of the areas he will focus on at Sanofi cancer, RSV vaccine and China opportunities, and Bloomberg asked Novasecta for their opinion on how he can achieve his goals:

“I suspect they will double down on specialty care because that’s where the growth is most likely going to come from, that requires making some tough calls, probably doing some M&A and continuing to streamline R&D.”

It will be interesting to see if Hudson can translate his success at Novartis to Sanofi and what lessons can be learnt from the MidPharma sector.

The recent announcement of pharma’s latest mega-merger has not been received well by many people, except perhaps Allergan Shareholders. The deal has been highlighted as another defensive mega-merger to protect against patent expiry.

In light of this the Financial Times asked John Rountree for his views on the deal:

“Continuing to boost top-line growth when patents are expiring on key drugs is very difficult to achieve . . . but it will not stop companies from trying, it is a dynamic that means the merits of such megadeals do not always receive adequate scrutiny.”

Pharma M&A is a topic we have discussed frequently and how greater value can be found partnering and strategic collaborations.

With the announcement of the latest pharma mega-merger, AbbVie’s move to buy Allergan for $63bn, John Rountree, was invited on CNBC to discuss the deal and the continuing trend of pharma mega-mergers.

John questions where the value is in the deal, with Allergan’s shareholders being the only likely benefactors. He highlights the defensive nature of the move and how it is proven that mega-mergers in pharma do not often bring benefits to the acquirer, as they become unfocused, lose innovation, lose growth and ultimately end up in trouble.

Pharma M&A is a topic we have discussed frequently and how greater value can be found partnering and strategic collaborations.

In light of the most recent decision from a US court, ordering Bayer-owned Monsanto to pay more than $2 billion in damages to a couple that sued on grounds the weed killer, Roundup, caused their cancer, Deutsche Welle asked John Rountree for his views on whether Bayer could survive further lawsuits and what they can do to limit the impact on the company.

Watch the full interview here

Discover John’s previous comments on Bayer here

GSK’s Q1 2019 results were released today (1st May) with their vaccine business driving growth past analyst’s expectations. Reuters asked John Rountree for his thoughts: “They are really refocusing into oncology and that’s going to take some time – to make that transition – so I think its going to be a difficult time for the pharma business,” adding that the vaccine business is growing.

John has been asked for his thought before on GSK, speaking to CNBC about the recent divestiture of the Horlicks brand and the focus on innovative pharma led by Emma Walmsley.

AstraZeneca’s Q1 2019 results were released today (26th April) with their oncology portfolio helping drive profits past analyst’s expectations. Bloomberg asked Novasecta for their thoughts: “They’ve got a whole raft of approvals in the pipeline, their transition from big pharma to big biotech is happening.”

The new initiatives of Pascal Soriot are clearly bearing fruit with relatively high investment in R&D, a reorganisation of their R&D structure, high deal volume (2nd highest over the last 5 years in the Global 100) and focus on increasing R&D programme success, from 4% to 20%.

As the timeline for Brexit shifts and no clear statement on the future of trade, Bloomberg, revisits the perennial question for pharma of supply. They highlight Novo Nordisk keeping an inventory of insulin at more than twice normal levels and asked for John Rountree’s opinion on this crucial topic: “Keeping extra supplies on hand is only one of the challenges. Brexit raises questions about new investment in manufacturing in the U.K. and bringing talented people into the country.”

Read the full article here

With the publication of the Novasecta Global 100, John Rountree, was invited on CNBC today to expand on some of the trends in our report, and in particular how attitudes towards M&A are changing in the sector and for investors.

John highlights the low revenue growth for 6 of the top 10 companies and how mega-mergers are no longer the solution to growth, highlighting the recent deal between BMS and Celgene. Instead he underlines the importance of smaller collaborative partnerships, such as the alliance between Regeneron and Alnylam, which allows both companies to focus on their strengths whilst utilising the support of their partners. Since our inception we have held a firm belief in the value of strategic collaborations.

CNBC also delve into the topic of whether tech giants will eat away at various segments in healthcare; to which John emphasises the difference in the approaches of tech and pharma and why tech companies’ consumer focused platforms might gain good traction in the healthcare sector.

Follow the links to read the Novasecta Global 100 or to learn more about achieving growth through strategic collaborations.

AI is one of the hottest topics in pharma at the moment and is already starting to yield results. One area it is making significant impact is in R&D. In the last two years alone there have been several multi million pound deals with leading pharma companies and AI providers, one of the most recent being the GSK collaboration with Cloud Pharmacuticals, who we interviewed earlier this month. R&D has always been a strong area for Novasecta and given our expertise MedNous asked us to think about how pharma companies could approach AI in R&D.

For insight on what the wider pharma industry should do about AI click here

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    Since our inception, we have held a strong belief in the value of strategic collaborations, and our whitepaper below and case studies demonstrate the value they bring to pharma.

    As the escalating cost of both M&A and R&D continues to challenge the global pharmaceutical industry, CEOs know that it’s incumbent on them to explore innovative ways to grow their businesses. The most entrepreneurial have recognised the significant opportunity to create business value through strategic collaborations. Initiating collaborations is complex and difficult. However, the most successful examples show that it helps organisations to fuel transformative growth by establishing a deeper strategic focus and a more effective deployment of high-value assets and capabilities. In this paper we examine the need for strategic collaborations, examples from pioneers, and the lessons learned from our experiences with making them happen.

    New paradigms for pharma growth required

    The decline in R&D efficiency since the ‘glory days’ of small molecule blockbuster medicines has been well documented: it just isn’t getting any easier to discover and develop your own great new medicines when there are so many great ones already out there. So pharma CEOs are still looking for alternative business models to fuel their quest for growth. The value to be had from me-too and incremental innovation has dissipated in many markets, while the cost of developing breakthrough medicines has rocketed.

    As organic top-line and bottom-line growth has therefore become ever more difficult to achieve, pharmaceutical companies of all sizes have increasingly looked for external sources of on-market or late-stage products to bolster portfolios and accelerate short-term revenues. Traditionally, company acquisition has been considered a good way of adding immediate top-line, in contrast with individual country/region deals for specific products. However, scaling a business through company or product acquisition alone presents significant challenges; there are many more in-licensors of products than out-licensors, while the prices of both companies and products have been inexorably rising. Alternative approaches to growth are required.

    In recent years, the difficulty of securing inorganic growth has fuelled a revealing trend across the sector: a marked fall in the number of deals that are executed. The global volume of mergers, acquisitions, asset transactions and strategic collaborations has been in steady decline over the last five years. In the past twelve months it has collapsed, dropping by 18% in the last year:

    Global deal volume declined sharply over the last year



    Notes − Novasecta analysis from GlobalData database of disclosed and completed pharma/biotech deals, for the year periods from July to June

    The decline in deal volume has not been limited to one particular type of deal, with the volume of M&A, asset transactions and strategic collaborations each reducing in the last year. Although the fall in M&A and asset transactions (-34%) is more pronounced, strategic collaborations have also seen a double-digit decline (-13%) in the last year:

    Global volume of M&A and asset transactions has trended down by more than strategic alliances


    Notes − Novasecta analysis from GlobalData database of disclosed and completed pharma/biotech deals, for the year periods from July to June

    The value of deals is down too. M&A and asset transactions value has fallen in the last two years and is now similar to the level 5 years ago. The value of strategic collaborations has been more resilient, though again the last year has shown a significant drop:

    Global value of M&A, asset transactions and strategic alliances is down


    Notes − Novasecta analysis from GlobalData database of disclosed and completed pharma/biotech deals, for the year periods from July to June

    The drivers for the fall in M&A activity are varied. Fundamentally, M&A is risky, costly and time-consuming. Studies routinely indicate that a high percentage of acquisitions fail to deliver on their estimated value targets.

    The challenges of M&A have been compounded in the last years by the escalating cost of doing deals. Our own deep-dive research – published in the Financial Times at the start of 2017 – showed that the price of acquiring businesses has almost doubled, making it prohibitively expensive for all but the largest and most well capitalised companies.

    In addition, the challenges of post-deal implementation – known to be complex, sluggish and protracted – undermine the promise of immediate top-line growth. Common incompatibilities between business models, processes and cultures means it can take more than 5 years – and significant operational disruption – to integrate a company. Moreover, the diversity, scale and complexity of the new entity can itself become too costly or too difficult to manage.

    However, despite the challenges, it’s evident that securing inorganic growth remains a strategic priority for many across the industry. This comes as no surprise. Pharma is a highly fragmented industry – its top five global players account for just 25% total market share (compared to 60-80% in sectors like Financial Services and Oil & Gas). Such fragmentation means that even the largest pharma companies almost always lack ‘critical mass’ in one area or another – whether that’s being ‘sub-scale’ in any of the various stages of R&D in diverse therapeutic areas, or having limitations in manufacturing, commercial or regional capabilities. These limitations are a natural barrier to growth. But they can also be a catalyst for opportunity.

    Pharma’s inherent fragmentation suggests that there is enough capacity within the industry for an increase in collaborative deals. The challenge is to be brave and to think differently. In a marketplace where the risks and costs of M&A have led to widespread caution, strategic collaborations – in which companies trade complementary assets and capabilities – could offer an alternative path to growth.

    In the past 12 months, Novasecta’s high-level dialogue with CEOs across its diverse network indicates an increasing appetite – particularly among mid-sized pharma companies – to take a bolder, more collaborative approach to growth. Entrepreneurial pharma companies are recognising that risk-sharing between companies can both mitigate the effect of limited capabilities in certain areas and fuel transformative value growth.

    Strategic pharmaceutical collaborations: trade, swap, or share

    Strategic collaborations are distinct from conventional BD activities such as M&A and licensing in that the emphasis is ‘strategic’ rather than ‘transactional’.

    The industry has an established BD system of functions in organisations, conferences and deal brokers that enables the buying, selling or licensing of assets because they’re tangible, quantifiable and liquidly transactable. The final deal, whether purchasing a company or in-licensing a product, is ultimately a relatively simple transaction. However, conventional deals can often be reactive, opportunistic or serendipitous, with targets sometimes pursued due to their availability rather than as part of a more considered strategy.

    A more effective method is to approach growth through the lens of trading, swapping or sharing carefully selected capabilities and assets. Strategic collaborations, which are founded upon transacting with something other than cash, provide an opportunity for organisations to reinforce their strategic focus by trading capabilities and assets with like-minded partners for mutual benefit. Cash may also change hands depending on the value of what is traded, but the foundation is the securing and giving of more than cash.

    The rationale is simple. Every organisation has a unique and diverse set of strengths – capabilities and assets – across multiple dimensions and countries. Similarly, almost every organisation has legacy assets and capabilities that may be misaligned with core strategy or surplus to requirements. Each of these areas has its own transactable value. Moreover, each presents an opportunity to build greater strategic focus and to collaborate to create scale. These assets and capabilities are the DNA of effective strategic collaborations.

    An organisation’s ability to leverage its assets and capabilities is therefore the key to strategic collaboration. This might be through a strategic ‘swap’, where companies trade complementary assets and capabilities, or a Joint Venture (JV), where partnering companies combine to create a new entity, or other types of creative structured deals.

    The strategic collaboration pioneers

    Examples of major strategic collaborations between Big Pharmas have been rare, but notable. Probably the most high-profile example was the 2014 deal between GSK and Novartis which saw the Swiss company swap its vaccines business for GSK’s oncology unit, with the two companies forming a JV in Consumer Healthcare. More recently, Merck has entered collaborative agreements with both AZ and Eli Lily, through which companies will share R&D capabilities to accelerate new cancer treatments. Coverage of the latter formed part of a wider discussion of how ‘fierce’ pharma rivals are increasingly becoming ‘frenemies’ that are cooperating with each other to help bring medicines to patients. It’s a direction of travel that’s likely to continue.

    However, although the most memorable examples appear to involve large multinationals, opportunities for strategic collaborations have been more likely to be seized by mid-sized companies – ‘MidPharmas’. Of late Big Pharmas have reduced its reliance on partnering as their deep pockets and strong balance sheets allow them to pursue the more apparently simple route of acquiring companies and maintaining long-term control over their smaller targets. Conversely, mid-sized organisations have been more open to collaboration, not least because their business models are more suited to ‘equitable partnering’ where financial resources, skills, capabilities and risks are more easily shared to create synergistic value.

    The notion that MidPharmas are more dynamic in executing M&A and strategic collaborations is borne out by the numbers. Our analysis of deal-making in 2016 shows that mid-sized companies are punching well above their weight when the volume of deals is considered as a proportion of the companies’ annual revenues:

    $20bn of revenue gets you many more deals in MidPharmas than in Big Pharma

    Notes − Novasecta analysis from GlobalData database of disclosed and completed pharma/biotech deals, combined with public domain revenue data from Novasecta’s analysis of European MidPharmas and Big Pharmas: strategic collaborations comprise both partnerships and licensing deals as categorised by GlobalData

    Reasons to strategically collaborate

    The emergent trends make interesting reading for CEOs considering new approaches to growth: collaboration is becoming more frequent than M&A in companies of all sizes. There are many potential reasons for this. Primarily, transaction values for strategic collaborations are much lower than for M&A. The average partnering deal is between five and ten times cheaper than the average M&A. This, in turn, translates into lower risk. Better still, collaborations are often easier to exit should the need arise.

    Strategic collaborations are undoubtedly difficult to initiate. However, once opportunities have been crystallised and discussions have advanced, deals are proportionately faster to create and often function without the need for full integration of processes and cultures. This gives companies an operational speed and agility that is rarely experienced with M&A. Similarly, since collaborations do not have the same impact on organisational culture as acquisitions, the risk of losing talent is significantly reduced. In fact, collaborations often create opportunities for skills transfer and learning, helping organisations retain and motivate talented employees.

    Fundamentally, strategic collaborations provide a powerful opportunity to create transformational value – helping companies stimulate innovation, deepen strategic focus and, ultimately, grow faster.

    Illustrative examples of the benefits of strategic collaborations compared to M&A

     Making strategic pharma collaborations happen

    So how can businesses determine whether strategic collaborations are an appropriate consideration for them? And once they have, how can they catalyse the opportunity to make collaborations happen? It’s a complex process that requires methodology, objectivity and trusted relationships.

    To start the process of considering strategic collaborations pharmaceutical companies need to view their complex businesses across four distinct units:

    • R&D assets
    • R&D capabilities
    • On-market assets
    • On-market capabilities

    Each of these units drives value and is eminently tradable. We define them as ‘Units of Transactable Value’. They’re at the root of transformative strategic collaborations, and to trade them effectively requires companies to know themselves, know their market, and make their moves.

    Step One: know thyself

    To identify opportunities for strategically focusing their business, organisations must have a profound and critical understanding of their own Units of Transactable Value. It is only by securing a “partners-eye” understanding of the strengths, weaknesses and value of its internal assets and capabilities – right across the value chain from R&D through to manufacturing and commercialisation – that a company can determine how attractive it is to potential partners and what it really needs to trade. Critical assessment can help identify areas where a business may be ‘sub-scale’. More importantly, opportunities can emerge to create greater value with the assets and capabilities the company has already got.

    Naturally, identifying and valuing assets is familiar territory for pharma. It’s eminently straightforward. However, the same cannot be said of capabilities, which are often harder to define and equally difficult to value. The relationships between assets and capabilities are multi-dimensional and complex; a company’s capabilities are aligned within and between assets, making it essential to understand the individual parts and the relationship between the two. Structured thought is key, at Novasecta we have found that clarity can be supported by reducing down the complexity to manageable elements:

    Illustrative asset and capability matrix

    Despite the undeniable importance of robust self-awareness in defining strategic focus, many companies lack a clear and objective view of their capabilities and their associated value to potential partners. This makes collaborations harder to ignite. In reality, such evaluation is therefore best carried out through an honest, critical and informed dialogue between executives and their most trusted and experienced external advisers.

    Step Two: look at the relevant partnership space with fresh eyes

    The second phase of unlocking strategic collaboration is to identify potential partners. This is a complex process that requires a deep knowledge of the marketplace and a broad understanding of the assets and capabilities that competitors may be prepared to put ‘on the table’ for collaboration. Naturally, this is difficult. There is no open market for companies to disclose where their organisations are sub-scale or indeed to indicate willingness to divest parts of their business. Moreover, although communications between CEOs are generally warm and supportive, it’s highly unusual for leaders to share sensitive strategic information or discuss areas of corporate vulnerability with peers.

    Again, a structured and experience-based approach is key, allowing a bespoke and sophisticated segmenting of potential targets based on both analytical evidence and subtle understanding of the motivators and drivers of other companies Proxy measures can be used to improve decision-making in this area. These could include pipeline data, R&D intensity, on-market product/portfolio sales, geographical footprint and divisional headcount. Likewise, in companies that have made a significant strategic shift – for example, a move from one therapy area to another – it’s a reasonable assumption that they may have legacy products or capabilities that they’re willing to trade or divest.

    With the right partner, proven methodology and clear decision criteria to support partner identification, it’s possible to build a shortlist of potential targets for collaboration. Once established it’s then a case of mapping capabilities and assets to develop deal hypotheses and rationales that may resonate with specific prospective partners.

    Step Three: make your move

    The sensitivities of brokering strategic collaborations mean that the final step is wholly dependent upon courage and trust. This is an exploratory and open dialogue, a long way away from pitch decks and mandates. Ideally, initial discussions with target companies will preserve the anonymity of the enquiring business, leading to a more open and honest view of deal feasibility and requirements.

    Novasecta’s experience in catalysing collaborations for clients is that a trusted and anonymous dialogue with a CEO or BD Head based on an initial well-reasoned deal hypothesis yields concrete interest and disclosure of additional deal hypotheses. This allows our clients to leverage the insights from such dialogues to inform – and, if necessary, change – their strategic approach. By opening the door to collaboration – irrespective of whether they choose to walk through it – organisations can benefit from real-world insights that might encourage them to rethink strategic goals. This, once again, underlines the emphasis on strategy that is inherent in collaborations – an emphasis that distinguishes it from more transactional deals.

    Naturally, in the event of discussions with a potential partner becoming more advanced, dialogue is ‘best unblinded’ – freeing the two companies to engage, negotiate and agree directly based on an excellent starting hypothesis.

    Catalysing strategic collaborations

    The need for strategic collaborations across the pharmaceutical industry has never been greater. However, they are incredibly difficult to do well. Successful collaborations rely on trust, clear deal hypotheses and – crucially – courage. One of the parties has to be brave enough to propose something that is not publically available that could be of interest to another party – and this alone dictates the need for strong trust between CEOs to enable open and honest discussion of future possibilities.

    In fact, the CEO is integral to the success of any potential collaboration. CEOs know that it is their responsibility to shape the strategic focus of their business to drive value creation and growth. The most entrepreneurial recognise that they must seriously consider spin-outs, divestments and out-licensing as well as acquisitions, asset transactions and joint ventures. However, forging successful strategic collaborations requires much more than a willingness to consider innovative growth models – it requires commitment, engagement and leadership.

    The good news is that strategic collaborations can be done. Our experience is that through the addition of our experience, analysis, strategic creativity and trusted CEO network our clients are catalysing strategic collaborations that would not otherwise have been considered. And in pharmaceuticals a collaborative industry will always beat an overly consolidated one.

    Novasecta’s Managing Partner, John Rountree, was asked by Reuters to reflect on Christophe Weber’s, CEO of Takeda, comments on the cuts to R&D after their deal with Shire:

    “They are cutting quite deep in R&D and it is not clear if the amount of money they are saving is going to be beneficial or harmful. Merging R&D is never easy. There are going to be lay-offs and that creates uncertainty and disruption and sometimes the best talent just leaves.” To view the full Reuters article, click here.

    This is not the first time John’s opinion has been sort on the deal having previously been asked for his thoughts by CNBC.

    As Bayer’s troubles continue, Die Zeit interviewed John Rountree to understand what is going on at Bayer and how they should proceed.

    Download the article in German above or read the English translation below:

    “All that just distracts”
      Bayer is fighting the lawsuits over the plant protection product Round-Up. But that hides the real problems of the group, says John Rountree.

      ZEIT: Mr. Rountree since acquiring the Agrochem Group Monsanto has lost Bayer 150 billion euros in value, threatening billions in billions due to claims for damages because customers claim they have gotten cancer from the use of the crop protection product Round-Up. Was that worth it?

      Rountree: Great scientists work at Bayer. But like many other pharmaceutical companies, Bayer is less good at maintaining a strong and trusted public image. The legal proceedings concerning the active substance glyophosate, which was included in the weed killer round-up, are a burden for the everyday business. Within the group, only a small group of employees take care of it, especially from the legal department and the executive board. But every Bayer employee knows about it and follows the proceedings. In this respect, a shadow hangs over the company. It is easy to imagine what the board meetings are talking about: legal risks, the current status of procedures and possible outcomes. It’s not so much about issues like growth, innovation, research, about things that drive a business forward, but about how the process goes. No matter how the proceedings go, Bayer will not break. But the procedures damage the reputation. It does not make it easier to find new talents. These are all side effects that will show in the performance in a few years. They do not settle down immediately. In that sense, the Monsanto acquisition is a burden for Bayer.

      ZEIT: So, was it wrong to want to become one of the largest agrochemical companies in the world?

      Rountree: At the moment of the takeover it seemed like no alternative. There was a consolidation process in the agricultural sector. Dupont and Dow Chemicals merged into Dow Dupont and Chem China acquired Swiss manufacturer Syngenta. As you thought at Bayer, you will soon have nothing to report, if you stay small. As such, the Monsanto acquisition seemed the right move. It was about economies of scale and cost reduction. It was about defending the status quo. But: the problem with the matter was already at that time, that one did that within the group structure: one did not separate out the own agricultural division from Bayer and a new enterprise. Now you have the problems: Because Bayer is actually a pharmaceutical company and the agricultural sector is a completely different business. It will not be easy for the board and management to bring that together.

      ZEIT: Before that, Bayer was also a company that was active in all these sectors. Why should this not work?

      Rountree: First of all, there are the customers. In the pharmaceutical sector, they have three types of customers: patients, doctors and those who pay, insurance companies or governments. You have to be prepared for that and you have to work with this not very simple constellation. In the agricultural sector, the customers are completely different: it is the farmers worldwide. This market is a completely different one. And as a corporation, you always have to think about the customer. So it would be better if the board focused on one thing than trying to bring pharmaceuticals, consumer brands, agrochemicals and veterinary medicine under one roof. It becomes very difficult to concentrate on the necessary things.

      ZEIT: The broader a company is set up, the more stable it is. In that sense, is not that wrong?

      Rountree: Man can see that as a sign of stability. But one has to wonder if it would not be better to have a board that only cares about pharmaceuticals and a board that deals only with agrochemicals. You could work much more concentrated. In addition, Bayer already has problems today. Bayer’s profit margin was 10 percent in 2018, which is the worst of all major pharmaceutical companies. Then sales general and administrative overheads at Bayer are exceptionally high at 39 percent of sales. In addition, debt has risen dramatically due to the Monsanto acquisition.

      ZEIT: But there are savings in the millions by the acquisition …

      Rountree: … the latter is a matter of expectation. Let’s put it this way: Bayer was not overly ambitious about these goals. And the high debts are a heavy burden on the management. If you have to save and the costs have to be reduced to pay the debts, then it makes investment in growth difficult. Even strategic investments are no longer so easy. High debts dampen one’s own ambitions. Of course, it can be good for a company to cut its own costs, to clean up, to become more profitable. But if you want to invest in growth, if you want to put money into research and development, impede such austerity programs. Not only on the subject of debt, but also on the subject of profitability are competitors such as Pfizer, Johnson & Johnson or Merck are significantly better.

      ZEIT: What are they doing differently?

      Rountree: They have no agribusiness and focus on what they do well. Above all, the US companies are much less widely positioned. And that’s good with pharma: you want a board that is extremely focused and can focus on the business. An exception might be Johnson & Johnson, which are broader but have a federal structure, meaning that the individual units are more independent. In addition, few pharmaceutical companies still make large acquisitions or form mergers.

      ZEIT: How is this an advantage?

      Rountree: Instead of taking over competitors, one works rather together on projects. This has proven to be a successful strategy in the pharmaceutical industry and is a trend. Take the example of Regeneron and Alnylam. These are two independently strong science-based US biotech companies. Bringing Alnylam’s RNAi expertise together with Regeneron’s genetics expertise is a win-win for the companies and for patients. For this they cooperate as independent companies. That means both keep their culture, their ethics, their organizational structure. And they can do research without being distracted by lengthy integration process. There is no need to look for synergies, there is no need to merge departments, employees are not secretly looking for a job because they are afraid of losing their jobs – all this is missing. You can just work in peace. Both sides can learn from each other and focus on their strengths. One plus one is more than two in this case.

      ZEIT: But you have to share the profits in the end as well.

      Rountree: But you also share the research costs and without further obstacles. This is better for the future of companies. And it works not only between big and small companies but also between big and big ones. For example, Merck cooperates with AstraZeneca in the field of cancer research. Both companies want to learn from each other. And they refrain from buying one another. Imagine if both had come together: A gigantic company would have emerged, the merger would have employed and distracted employees for years. The Monsanto takeover by Bayer has been running for two years. A lot of energy is used on it, the employees and the board are distracted, meanwhile others cooperate and can do research and development without being distracted.

      ZEIT: What should Bayer do to your opinion now?

      Rountree: It’s difficult at the moment. One should outsource the agricultural sector and lead independently. Let me say it again: agrochemicals and pharma are not compatible. But at the moment this is hardly possible .. In the US, the processes are running because of Monsanto and nobody knows how they go out, there are no investors.

      ZEIT: You advise pharmaceutical companies worldwide. How much easier is it to be able to express one’s opinion without being responsible for the consequences of the business, like a board?

      Rountree: We have a different role as consultants. I feel that our job is to provoke and challenge the board and management. We need to help them to find a different perspective and to think differently so they can make the best decision they can with confidence. And in one, I have to correct you: we have a lot of responsibility, it’s a tough business and our clients won’t ask for our help if they don’t see value from it.

      ZEIT: Can you buy a pack of aspirin tablets at the pharmacy without thinking about which company made it, how it is and how profitable the pack is?

      Rountree: When I see a pharmaceutical product like Aspirin I always think about the company that made it and the amazing effort and resources that it took to get it to the point where patients can get the benefit of it.

      Bayer is a company that we have been asked to comment on several times before, to read our previous views click here