Bayer to split down the middle

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The long-awaited break-up of Germany's Bayer has finally come to
pass with the decision to float the group's chemicals business on
the stock exchange within the next 18 months. But will this be the
end of the story for the pharmaceuticals unit?

The long-awaited break-up of Germany's Bayer has finally come to pass with the decision to float the group's chemicals business on the stock exchange within the next 18 months.

The aim is to concentrate on the group's core health care, nutrition and innovative materials operations, while combining Bayer Chemicals with certain parts of the group's polymers business when the spin-off - either by an initial public offering or by a stock sale to Bayer​ shareholders - takes place. The company said this would occur "by early 2005 at the latest".

The separation of the chemicals business into a new company, for now referred to simply as NewCo, should yield significant cost savings and improve growth potential for Bayer, which has been criticised by industry observers for its unwieldy corporate structure. The independent company would have €5.6 billion in annual sales and a work force of about 20,000, ranking it among Europe's leading chemical suppliers, according to Bayer.

Chief executive Werner Wenning said in a statement that Bayer will now be able to "focus more closely on the core businesses...and, above all, growth areas which we intend to strengthen further by pooling our resources."

The spin-off leaves Bayer with its pharmaceuticals unit, under the Bayer Healthcare banner and also incorporating its nutrition activities, along with Bayer CropScience (spun off as a legal entity in Autumn 2002) and Bayer MaterialScience, which includes its coatings business. The unit will have annualised sales of €22 billion and 96,000 employees.

Dr Wenning also claimed that Bayer Chemicals would also be better positioned for growth following the move. "We are safeguarding the future of our chemicals business because, as an independent company, NewCo will be able to respond faster and more flexibly",​ he said. Its chief executive officer-designate is Axel Claus Heitmann, currently head of Bayer's Asia headquarters in Shanghai, China.

NewCo will have a broad-based portfolio of around 5,000 products covering basic, specialty and fine chemicals as well as polymers, and will include intermediates for the manufacture of active ingredients for pharmaceuticals.

Leverkusen-headquartered Bayer has been debating how to best restructure its organisation after a number of key setbacks over the last few years, most notably the withdrawal from the market of its statin drug Lipobay/Baycol (cerivastatin) in 2001 on safety grounds, and subsequent legal costs from injury claims in the USA that at one point looked like they may put the future of the entire business in jeopardy.

Other difficulties for the company in recent months include production problems for Kogenate (recombinant Factor VIII), its haemophilia treatment, and the loss of patent protection in the US for top-selling antibiotic Cipro (ciprofloxacin).

Fruitless search for partners

Initially, Bayer had hoped to secure partners for its pharmaceutical and chemicals businesses but, after failing to make a marriage on favourable grounds, it had been widely expected that either an IPO or an outright sale of the chemicals business would take place.

Having considered a host of options for the pharmaceutical unit, Bayer says that it will now keep control of a modified unit and position it as "a mid-size European pharmaceuticals business because we are convinced that this will generate the greatest value for shareholders,"​ noted Dr Wenning. The company will focus on the European market and three core therapeutic areas; cardiovascular, urological and anti-infective drugs.

After its difficult period, the pharmaceuticals unit has produced grounds for optimism in recent months, most notably with the approval of the erectile dysfunction treatment Levitra (vardenafil; partnered with GlaxoSmithKline).The company also has high hopes for a raf kinase inhibitor for the treatment of advanced renal cell carcinoma, developed in collaboration with U.S. company Onyx, which has now entered Phase III clinical trials.

However, observers suggested that the latest move may not be the last for the pharmaceuticals unit. Its new streamlined structure could make it more attractive to potential partners, it was noted.

Bayer stressed that no additional jobs will be lost as a result of the restructuring; it is already in the process of trimming down its staffing levels by around 15,000 workers.

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