Life Sciences Industry Declared Dead in Europe

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December 06, 1999

Life Sciences Industry Declared Dead in Europe

BLOOMBERG NEWS

London - The promise was tantalizing. Crops impervious to pests. Drugs

without side effects. For Krauer and Marc Moret, genetic engineering

offered the chance to enhance the benefits and minimize the flaws of foods

and drugs.

The chairmen of Ciba-Geigy AG and Sandoz AG were among the first to commit

their companies to genetic research and other " life sciences " and quit the

boom-and-bust business of making plastics, dyes and detergents from oil. In

1996, they agreed to a $36 billion merger that created Novartis AG.

Novartis has abandoned that vision.

The Swiss company said last week it will spin off its farm-chemicals

business, the world's biggest, and merge it with a similar unit to be spun

off by the British life- -sciences company AstraZeneca PLC. The new company,

Syngenta, will have 24 percent of the world's $32.6 billion farm chemicals

market.

Novartis, the world's second-biggest drugmaker, will be left with

pharmaceuticals and nutrition businesses that accounted for 74 percent of

its sales last year.

AstraZeneca, which makes Losec, an ulcer medication that's the world's

best-selling prescription drug, will keep drug and nutrition units that

generated 83 percent of its first-half sales last year.

The idea of creating life sciences companies " seems to be dead in Europe, "

said Doug McCutcheon, a director of corporate finance at Warburg Dillon

Read, a division of UBS AG.

Many of the world's biggest chemicals companies, beginning with Monsanto Co.

before Novartis was born, pursued the same vision. For some, the dream still

beckons: Rhone-Poulenc SA and Hoechst AG are merging this month to create

Aventis SA.

Now some companies are rethinking their plans. Monsanto, the No. 2 farm

chemicals company, is under pressure from shareholders to split its drug

business from its pesticides, seeds and feeds units. The reason: its shares

fell 4.6 percent over the last 52 weeks while the S & P 500 index rose 20

percent.

In the same period, Novartis shares declined 1.3 percent. The Swiss Market

Index gained 11 percent.

American Home Products Corp., which bought its American Cyanamid

agrochemicals division five years ago, is also likely to be interested in

selling the units, analysts said.

What Krauer, Moret and the other life sciences executives hadn't reckoned

with was:

The fundamental incompatibility of some of the businesses they were trying

to combine. Sales of farm chemicals - animal drugs, pesticides and

fertilizers - are growing at about one-third the rate of human

pharmaceuticals. And unlike drugs, which people buy during good times or

bad, farm-chemicals sales fluctuate with the price of crops and livestock.

European consumers have become increasingly sensitive about how their food

is grown, casting an especially critical eye on the use of chemicals and

genetic engineering.

The cost savings and new products expected from the life sciences strategy

never came about.

The outlook for growth in the $30 billion agrochemicals market pales to that

of the drug industry, where major drug companies like Bristol-Myers Squibb

Co., Merck & Co. and others regularly achieve sales and earnings growth of

10 percent to 20 percent a year.

According to Lehman Brothers, the agrochemicals market grew 3 percent a year

over the last 10 years, adjusted for inflation, calling it " a mature and

mundane market. " The investment bank said it expects growth to slow to 1

percent a year over the next five years.

However, growth will accelerate in higher-technology aspects of the

industry, where companies like Monsanto and others focus on developing crops

with traits that will appeal to consumers, such as foods with higher

nutrition content, Lehman said.