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Biotech / Medical : Biotech Valuation

CRSP 57.54

+3.0%

2:06 PM EST

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To: Icebrg who wrote (4428)	8/9/2001 1:44:15 AM
From: Icebrg	Read Replies (1) of 52153

Financial Times' Lex column on Bayer. It will take more than aspirin to ease the strategic migraine Bayer is left with after the Lipobay fiasco. Withdrawal of its main growth engine ends the dream of maintaining an independent pharmaceuticals business with above-market growth alongside its chemicals and agrochemicals arms. Without Lipobay, with delays on Kogenate, and two other blockbusters coming off patent, top-line pharmaceutical growth prospects look limited. Its 20 per cent operating margin target in healthcare next year is unattainable. Jettisoning that target demolishes Bayer's defence of its conglomerate structure. That structure was long viewed as a poison pill against a hostile bid for the whole of Bayer. But given its weakened state, drugs groups might consider an opportunistic offer for the healthcare business. Bayer still has leading antibiotic and cardiovascular franchises and a strong drug discovery platform. Even putting pharmaceuticals, minus Lipobay, on 13 times earnings before interest, tax, depreciation and amortisation - a discount to the sector average of 15 - and diagnostics and consumer care on 11, the healthcare division is worth E23bn. That equates to E31 per share against Wednesday's E37.50 close for the whole group. The management's opposition to selling pharmaceuticals means it might reject anything other than a merger or joint venture enabling it to retain a stake. But Wednesday's fall in Bayer's value was arguably less than Lipobay was worth - suggesting its conglomerate discount has shrunk slightly. It could disappear rapidly if the market senses Bayer is finally ready to change its structure. news.ft.com

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