Aventis was going to be the holdout. As rivals such as Pharmacia & Upjohn in the U.S., Novartis in Switzerland, and AstraZeneca in Britain sold or spun off their agricultural businesses during the past month, Strasbourg's Aventis didn't budge. After all, when France's Rhone-Poulenc and Germany's Hoechst formed Aventis last December by merging their drug and agricultural businesses, they proudly proclaimed their new company the world leader in "life sciences." By applying the same kind of gene-based technology used in drug discovery to agriculture, their thinking went, Aventis could realize major cost savings and a host of promising new products, including enriched seeds and disease- and insect-resistant grains.
Nearly a year later, it's clear the life-sciences model is dead. A distressed commodities market and increasing consumer fears about genetically modified foods have forced Aventis to follow the pack. On Nov. 15, the company announced Aventis would sell off its $2.7 billion crop-sciences operations by the end of 2001. Aventis is currently in discussion with Germany's Schering, which owns a 24% stake in Aventis Crop Sciences, about possibilities, including an initial public offering.
TAINTED TACOS. The recent fiasco surrounding StarLink, a genetically engineered corn developed by Aventis for animal feed, most likely played a part in the decision. Aventis, Europe's second-largest drug company, found itself embroiled in controversy in October, when traces of StarLink corn showed up in taco shells in the U.S. Aventis no longer produces StarLink, and has withdrawn its registration with the Environmental Protection Agency. "Our future is clearly pharma, where we intend to post sustained double-digit, top-line growth," says Jurgen Dormann, chairman of the management board.
But unloading the agriculture division is no easy task. An outright sale to a major rival would face antitrust problems because Aventis Crop Sciences controls about 15% of the global market. And market conditions are unfavorable for floating shares. When Syngenta, the merged agrochemicals businesses of Novartis and AstraZeneca PLC, went public on Nov. 13, its market valuation was around $5 billion, roughly half of what its parent companies had anticipated.
EURO BOOST. Until recently, however, the life-sciences approach had served Aventis well. On Nov. 9, Aventis reported sales of $13 billion for the first nine months of 2000, up 12% from the previous year, with pretax profits of $814 million. The good news for investors is that Aventis "is on target to achieve 40% earnings growth for 2000," says Commerzbank European drug analyst Mark Clark.
Of course, the weakness of the euro has certainly helped exports. But according to analysts, savings derived from the merger are fueling earnings growth. "The challenge will be making the right moves to maintain top-line growth once the merger story has played out," says Mark Ravera, an analyst at Mehta Partners, pharmaceutical and biotech investment advisers in New York.
That means expanding sales in the U.S., the world's biggest market for prescription drugs. Although Aventis is the sixth-largest drugmaker in the world, with a 4% share of the market, it ranks a mere 12th in the U.S.
Aventis also must bring a steady flow of new drugs to market. And its recent record is good. Two drugs put on the market four years ago, allergy medication Allegra and anti-bloodclotting drug Lovenox, are expected to reach $1 billion in annual sales this year. A drug company counting on drugs, not ag products? That's what you call focus.