Wed, Jul 21, 2004 page12

• Bayer buys Roche's non-prescription business

  PHARMACEUTICALS If EU and US officials approve the deal between the German and Swiss companies, it would create a new world leader in over-the-counter drugs

  • NY TIMES NEWS SERVICE
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  Bayer, the German chemical and drug giant that makes aspirin and Alka-Seltzer, said on Monday that it would buy the over-the-counter (OTC) drug business of the Swiss pharmaceuticals company Roche in a deal worth about US$2.95 billion that would create a world leader in non-prescription medicines.

  If the deal is approved by antitrust officials in Europe and the US, the enlarged Bayer consumer health care unit would continue to be based in Morristown, New Jersey, and be led by Gary Balkema, the president of Bayer Healthcare. The combined operations would have 6,700 employees in 120 countries.

  Roche, whose main OTC products, like Rennie antacid and Supradyn vitamins, are known mainly outside the US, had put the non-prescription business on the market in order to focus on its pharmaceuticals and medial diagnostics business.

  Its leading prescription drugs include Pegsys and Copegus, sold as a combination treatment for hepatitis C, Fuzeon, an AIDS drug, and Herceptin, for breast cancer.

  For Bayer, whose pharmaceuticals business has stumbled, the move gives the company more clout in over-the-counter treatments and greater geographical balance in that business, which Bayer executives expect to reach 2.4 billion euros (SU$2.98 billion) after the merger.

  In consumer health products, including nutritional products and vitamins, the bigger Bayer would rank behind Johnson & Johnson, GlaxoSmithKline, Procter & Gamble and Novartis. But in OTC alone, it would be third, after Johnson & Johnson and GlaxoSmithKline.

  "It is our stated goal to expand our OTC business further and to become the No. 1 worldwide," Bayer's chief executive, Werner Wenning, said in a statement. "With the acquisition, we have taken a big step closer towards our goal."

  Investors, though, indicated doubts about Bayer's strategy and its ability to finance the deal, which is to be paid for at least in part from the company's cash flow.

  Standard & Poor's lowered Bayer's long-term debt to A from A+, on questions about the deal's affect on the company's ability to meet debt obligations.

  Moody's Investors Service, however, affirmed its A3 rating for Bayer, citing the deal's ability to strengthen the company's position in consumer healthcare, a business with high profit margins.

  Analysts said the transaction could help counter possible negative effects from Bayer's plans to spin off its Lanxess chemicals unit, which represents about 20 percent of the company's sales.

  The deal also reduces emphasis on Bayer's pharmaceuticals business, which has had trouble with developing new drugs. Its leading antibiotic, Ciprol, has been losing market share to generic drugs.

  And it is still grappling with thousands of lawsuits by people who said they suffered side effects from Bayer's cholesterol treatment, Baycol, which the company withdrew from the market in 2001.

  Bayer said that the acquisition would incur one-time charges of some 300 million euros and reduce earnings per share by 0.25 euros next year, but that it expected a positive effect on results in 2006 and cost savings of 100 million euros to 120 million euros over the next three years.

  Under the deal, Bayer will buy out Roche's half of the companies' joint venture in the US, which include marketing the nonprescription painkiller Alleve.
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