Bayer Rejiggers Drug Pipeline

The drugmaker sheds 20 products from its queue and teams up with ZymoGenetics.
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Aside from shedding 20 pipeline products,

Bayer

(BAY)

announced a product marketing pair-up with

ZymoGenetics

(ZGEN)

, offered an update on Nexavar and slightly raised its earnings outlook on Tuesday.

Bayer said that due to its $21 billion purchase of Schering AG, its profit margin might be slightly better than expected in the next few years. Specifically, the drugmaker is aiming for an EBITDA margin for Bayer Group as a whole of more than 20% this fiscal year, in comparison to 19% in 2006, and believes it may be beyond its previous target of 22% for 2009.

Also, the company said the profit margin for its Bayer HealthCare unit will rise by 25% this year and 28% in 2009, a percentage point higher in both instances than prior expectations.

This came amid some spring cleaning, as the company said 20 of its pipeline products aren't making the cut. These include a candidate to treat Crohn's disease and one to combat benign uterine tumors. But the company is also adding to its breadth.

Subsidiary Bayer HealthCare announced a deal with ZymoGenetics to market rThrombin.

Through the course of the three-year agreement, Bayer will pay the Seattle-based company up to $128 million in development and sales-based milestones for the recombinant form of human thrombin, which is used as an aid to control bleeding during surgery. It will pay ZymoGenetics an additional $70 million in 2007 in the form of a $40 million upfront payment and a $30 million milestone payment, creating a possible total of $198 million over the span of the agreement.

Bayer Healthcare, in turn, will retain the rights to market the product in all countries excluding the U.S. indefinitely and will be responsible for any clinical trials that are needed and securing regulatory approvals.

Within the U.S., Bayer HealthCare will co-promote the drug for three years and will be compensated on a tiered commission of up to 30% of U.S. sales and up to $20 million in bonus payments tied to sales levels from ZymoGenetics. It will continue to receive a sales commission -- at a reduced rate -- for two more years following the end of the co-promotion.

"rThrombin has strong clinical data and considerable near-term revenue potential for our hematology and surgical hemostasis business," said Arthur Higgins, chairman of Bayer HealthCare.

Separately, Bayer said Tuesday that it and cohort

Onyx Pharmaceuticals

(ONXX)

submitted a marketing authorization application to the European Medicines Agency for the approval to market liver cancer treatment Nexavar. The pair said they also plan to file a new-drug application to the Food and Drug Administration for the tablets this summer.

Bayer was up $1.16, or 1.6%, to $76.17, and Onyx was up 28 cents, or 1%, to $29.40. ZymoGenetics was up 80 cents, or 5.4%, to $15.73, Tuesday after rising as much as 9% in premarket trading.