Bayer and Aventis Pool Blood Businesses

25 February 2002 00:00  [Source: ICB Americas]

Putting months of speculation to rest, Bayer AG and Aventis SA announced last week that they intend to combine their blood plasma businesses in a joint venture.

Bayer will have operational control of the business, which will comprise Bayer's biological products business group and the Aventis subsidiary Aventis Behring. Bayer will also own a substantial majority interest, with the option of acquiring the remainder.

"This agreement is a major step for us in expanding our activities in health care, particularly with regard to establishing a health care company," says Manfred Schneider, chairman of Bayer's board of management. "We hope that the planned joint venture will sustainably enhance the performance of our strategically important biological products business."

The deal, which must be approved by the boards of both companies and regulatory authorities, includes marketing rights to the genetically engineered Kogenate line of hemophilia products.

One German analyst notes several benefits to the JV. "First there are the economies of scale, which are not only the cost position but also the collection of blood, which is in short supply," he says. "Second, Bayer has only two production plants--a risky position. Third, Aventis was responsible for 25 percent of the sales of Bayer's most important product, Kogenate [recombinant Factor VIII]. So they save costs in both collection of blood and distribution of product. They will also have a broader geographic reach."

The analyst estimates the combined market share of the new business to be 30 percent, pushing Baxter, with 27 percent, into second position. "That is only temporary," he adds. "Growth is in the recombinant range, and Baxter has a higher growth rate and market share there."

The deal is a win-win situation for Bayer and Aventis, he says. Bayer has safeguarded its long-term position in both blood fractionation, where there are only three major players--The Red Cross, Baxter and Bayer--and in recombinant products, where the only major competitors are Baxter and American Home Products (soon to be renamed Wyeth).

Aventis, on the other hand, can exit the plasma business, where it suffers from the lack of its own recombinant product, and focus on its ethical drug business. Further, Aventis will be able to pay down its debt--no cash will change hands with the JV's formation, but when Aventis ultimately pulls out, it will be compensated.

The announcement is unlikely to affect Bayer's stock valuation, though, since the deal has been expected for several months. Further, it does not change the fragile situation of Bayer's pharmaceutical business, the most valuable component of its healthcare group. After opening at $29.12 Wednesday morning, Bayer's stock price closed at $29.03.

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