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Biotech / Medical : Monsanto Co. -- Ignore unavailable to you. Want to Upgrade?

To: Dan Spillane who wrote (2198)	6/21/1999 9:10:00 AM
From: Exacctnt	Read Replies (1) \| Respond to of 2539

Dan, Second thoughts about the Life Sciences concept? biz.yahoo.com REPEAT - Is the life sciences model unravelling? By Jonathan Birt, European pharmaceuticals correspondent LONDON, June 21 (Reuters) - Is the ''life sciences'' model, virtually invented with the creation of Britain's Zeneca earlier this decade, starting to unravel? Consistenly poor results from agriculture and bad publicity surrounding genetic modification of crops have fuelled speculation that a number of top pharmaceuticals-to-farming groups could be looking for an exit route that will allow them to concentrate on the more profitable business of selling drugs. Although the company will not comment directly, investment banking sources said the board of newly merged Anglo-Swedish AstraZeneca Plc (quote from Yahoo! UK & Ireland: AZN.L) is actively considering all options for its UK-based agrochemicals arm, which could be worth anything between three and five billion pounds ($4.78-7.97 billion). A recent shake-up at the top of Swiss group Novartis AG's agribusiness aroused media speculation that it too might be considering its options, while a profit warning from American Home Products Corp (NYSE:AHP - news) following a slump in crop protection sales earlier this month led to calls for it to split off its agribusinesses from healthcare. Novartis Chief Executive Daniel Vasella told Reuters that all its businesses had to meet performance standards, and said the appointment of Heinz Imhof to head the agriculture wing was designed to improve focus and competitiveness. But even though he predicted negative growth in agriculture in 1999, he said a sale ''would not necessarily be attractive, since we are already cash rich and could not invest the proceeds with as high a free cash flow as the agribusiness division is providing us today.'' The argument in favour of life sciences, which has been taken up by Germany's Hoechst AG (quote from Yahoo! UK & Ireland: HOEG.F) and Rhone-Poulenc SA as they strive to form the world's largest such group under the name Aventis, is that it offers synergies across a broad scientific spectrum. It also pools expertise in areas such as rapid screening of potential compounds and technologies like genomics. But Novartis's Vasella said synergies were ''limited,'' and the new-look AstraZeneca likes to describe itself as ''a new force in world pharmaceuticals.'' Some believe the model created by the UK's Imperial Chemical Industries Plc (quote from Yahoo! UK & Ireland: ICI.L) when it demerged its drug and agrochemicals businesses into Zeneca Group in 1993 was largely an accident which it was then obliged to rationalise. ''They had to draw the line somewhere,'' one investment banker said. And others argue the model is rapidly becoming obsolete, with big pharmaceutical companies now focused heavily on maximising drug sales through costly marketing efforts rather than sharing science, which they can use their huge budgets to buy in. ''I think it might break up -- you might see more focus on common customers rather than common technology,'' said Robert Thong, an independent consultant who advises pharma companies on strategy. ''A lot of the focus is on sales and marketing and clinical development -- getting a drug aproved all across the world at the same time to maximise sales, or getting thousands of sales reps talking to physicians as Warner-Lambert (NYSE:WLA - news) has done in the U.S. -- that has catapulted (cholesterol drug) Lipitor to number one from nowhere.'' Agricultural products also command much lower margins than pharmaceuticals -- Morgan Stanley has forecast agrochemical profit margins for AstraZeneca of aroond 15 percent over the next six years compared with between 25 and 30 percent for pharmaceuticals -- and are highly cyclical. This is reflected in lower ratings -- ''pure play'' health groups like Pfizer Inc (NYSE:PFE - news) of the U.S. and Britain's SmithKline Beecham Plc (quote from Yahoo! UK & Ireland: SB.L) are trading on price/earnings multiples of 43 and 34 times estimated 1999 earnings respectively, according to Enskilda Securities. In contrast, AstraZeneca, Novartis and AHP are trading at between 24 and 27 times prospective earnings. If there really is a trend away from life sciences, the timing would be unfortunate for Aventis, which still has another six months of protracted labour pains to suffer before it is even born. But analysts argue the putative Franco-German combine is in a rather different position to its peers. The group's pharma business is much weaker than AstraZeneca's and Novartis's, making its agro business much more valuable as a source of profits. The group's strategy may be to hang on in with agrochemicals until its drugs arm is strong enough to compete successfully. Aycan Coyle-Hickey, analyst at TCI Consulting in the Hague, said she expected both Novartis and Aventis to hang on to agrochemicals for the forseeable future. ''Novartis is number two, so why sell a business with that market position? Aventis will be number one, and agrochemicals accounts for a third of their business -- you'd wonder why they are merging if they are questioning one third of their business.'' --------------------------------------------------------------------------------