Life sciences Green and dying

Life Sciences Dump AgBiotech Divisions

Agence France Presse
Monday, November 20 12:18 PM SGT
Life science: a dying breed?
LONDON,

Life sciences, the fusion of agriculture and pharmaceuticals heralded as
the future of food in the mid-1990s, is on the verge of becoming extinct.

One by one, the world's pharmaceutical titans have backed away from the
life science concept, shedding their agrochemicals interests to focus
instead on 'pure' pharmaceuticals.

So what went wrong?

Firstly, the cost savings promised to shareholders when drugs companies
unveiled the life science concept have been slow to materialise.

"The synergies that the life science companies talked about in the past
between crop science and pharmaceutical drug development doesn't seem to
be there," Merrill Lynch analyst Owen Dwyer said.

And while cost savings have been disappointing, sales growth has proven
even more elusive.

Aventis, the Franco-German pharmaceutical group created last year by the
merger of the life science activities of Hoechst of Germany and Rhone
Poulenc of France, saw its pharmaceutical sales jump 16.2 percent in the
first nine months of the year.

But Aventis CropScience, its agrochemical venture in which German drug
giant Schering also owns 24 percent, was hit by a 1.8-percent drop in
sales.

"In agrochemicals there is little growth... any growth that people were
expecting, they were expecting it from the biotech and genetically
modified food areas," Dwyer said.

It was perhaps not surprising, therefore, that Aventis announced on
Wednesday it was looking to sell the business. Equally unsurprising was
the response of Schering when asked if it was interested in buying out
Aventis: thanks, but no thanks.

Only Bayer, the German chemical and pharmaceutical group, has shown any
real interest in Aventis CropScience.

Aventis is only the latest in a long list of pharmaceutical companies that
have begun to re-think their love affair with life sciences and the
agrochemicals sector.

Swiss drug giant Novartis and Anglo-Swedish counterpart AstraZeneca have
spun off their combined agrochemicals interests, Syngenta, which made an
unimpressive debut on the Zurich stock market Monday.

US groups Pharmacia and Upjohn and Monsanto decided to spin off their
agrochemicals interests under the Monsanto name after their tie-up earlier
this year.

American Home Products also off-loaded its agrochemical operations,
Cyanamid, to German chemicals giant BASF this year. BASF is bucking the
trend by selling its Kroll pharmaceuticals business to focus on
agrochemicals.

"Companies are making the business decision that they need to concentrate
on pharmaceuticals, and as a consequence they're shedding this life
science branding and are clearly getting rid of the agrochemical
businesses," said one London-based pharmaceuticals analyst.

So why have the returns on the agrochemicals business been disappointing?

Firstly, a series of bumper harvests have led to low crop prices and have
depressed demand for fungicides, an important product for agrochemical
companies.

Secondly, a backlash of public hostility towards genetically modified (GM)
food has left companies fighting an uphill battle to gain regulatory
approval for GM food.

Consumers, meanwhile, are becoming increasingly suspicious about what they
eat, in no small part due to the increasing number of deaths from
Creutzfeldt-Jakob disease, the human form of madcow disease, or bovine
spongiform encephalopathy (BSE).

In reponse, the British arm of McDonald's, the world's biggest fast food
chain, announced Thursday it would no longer use animal feed containing GM
ingredients.

Dwyer said companies were caught a little bit by surprise by the degree of
public hostility to GM food.

"It's difficult to see any short-term acceptance by consumers,
particularly in Europe, on genetically modified foods," he added.

Agrochemical companies moreover face huge compensation claims if GM food
is found to be potentially damaging to health, a claim made by
environmentalists.

But those companies that do try to weather the storm in the long run could
reap an agrochemical windfall, analysts say.

"If they could get those types of products accepted, then there is
potentially massive growth opportunities," said Dwyer. "However, that's a
very big if."

In the meantime, pure agrochemical companies will be left alone to sink or
swim.

As one analyst noted, companies such as Syngenta and Monsanto "have no
choice -- they've got to concentrate on agrochemicals because that's what
they are."

===================================================================

Life sciences Green and dying

Nov 16th 2000
>From The Economist print edition

FASHIONS in the boardroom can be as fickle as those on the catwalk. One
of the latest big ideas to come unstuck is the “life sciences” company,
with divisions specialising in agriculture, pharmaceuticals and
nutrition all under one roof. The merit of this was trumpeted in the
mid-to-late 1990s by firms that looked forward not only to synergies,
but to a harvest of novel products.

This week, Aventis, a Franco-German drug company, announced that it will
sell its agricultural business by the end of next year, in effect calling
time on the life sciences dream. No wonder: whereas sales from its
pharmaceutical division reached euro11.8 billion ($11.1 billion) in the
first nine months of this year, a 16.2% increase on a year earlier, sales
at Aventis CropScience, the agrochemical and genetically modified (GM)
seed business, shrank by 1.4% to euro3.5 billion. Agricultural sales
have been dented by the lingering impact of the emerging-market crisis
on commodity prices; and the popular backlash against GM foods in Europe
has dashed the expectations for high-tech seeds. The continuing (and
costly) mess in America over Aventis’s GM maize has further damaged the
crop division.

Nor is Aventis the first firm to put its agricultural division out to
pasture. AstraZeneca and Novartis, two other life science evangelists,
agreed to combine their agribusinesses into a single entity last year.
Their new creation, Syngenta, made its stockmarket debut on November
13th. The firm’s prospectus suggested a value of $10 billion. However,
after the first day’s trading Syngenta’s market capitalisation was only
a little over $5 billion. Aventis will be watching how Syngenta fares,
as it decides whether to float its crop business or to make a trade sale.

The unravelling of life sciences comes as no surprise to cynics who saw
it less as a business strategy than as a pretty label to stick on what
was left of companies once they “evolved” by disposing of their
low-margin, cyclical chemicals assets. As Michael Pragnell, head of
Syngenta, points out, keeping agriculture and pharmaceuticals together
provides synergies in basic research, but these soon evaporate when it
comes to further development and marketing. Moreover, such benefits are
easily diluted by the strain of having to manage two very different
businesses.

What then of the firms that still keep drugs and agriculture together?
Pharmacia, a drug company that bought Monsanto, perhaps the best-known
life sciences firm of the lot, is expected to sell the whole
agribusiness within two years. DuPont, a chemicals conglomerate,
increased its exposure to agribusiness with its $7.7 billion purchase of
Pioneer Hi-Bred last year. The shortcomings of its pharmaceutical
division are increasingly apparent, however, since sales of two of its
leading products are under threat from generic competition and it has a
lacklustre drug pipeline. P.J. Juvekar, a chemicals analyst at Schroder
Salomon Smith Barney, reckons DuPont lacks the size to survive in drug
making, and is likely to sell the business.

Germany’s BASF is said to be contemplating a similar move. While its
agrochemical division has grown through the purchase of American Cyanamid
earlier this year, its drug division is relatively small. BASF does,
however, enjoy lucrative sales of a drug for thyroid dysfunction and has
a promising anti-obesity medicine. Eli Lilly and Bristol Myers Squibb
could both be interested in its drug-making arm.

One of the last firms to keep pharmaceuticals and agriculture together may
be Bayer, another German chemicals giant. Unlike the rest of the industry,
whose operating margins in agribusiness are roughly half those in
pharmaceuticals, Bayer’s agrochemical division is more profitable than its
drug-making business, which suffers from poor marketing. The company has
tried to beef up its drug division through alliances with biotechnology
firms, and is keen to find a suitable merger partnera tough task since
there are few firms of similar size left. But it is unlikely to change its
diversified strategy until 2002 when its chief executive, Manfred
Schneider, retires. It may then have little choice, as consolidation and
competition in drugs and agribusiness make it ever harder for firms to be
good at both.