By Brian Lund (TMF Tardior)
May 23, 2000

Pharmaceutical companies -- or perhaps I should say pharmaceutical investors -- have Schwarzeneggeritis. Every product has got to have blockbuster potential. If you don't have a blockbuster drug in your cabinet, dude, you're nowhere.

The lack of a "killer app" (so to speak) has held down Aventis (NYSE: AVE), the life sciences company formed by the merger of Hoechst AG and Rhone-Poulanc SA in December 1999. That may be changing, however. The Strasbourg, France behemoth reported its earnings for the first quarter -- its first complete quarter as a single entity -- this morning. It appears that things are beginning to gel at the company.

• Sales at Aventis Pharma swelled to euro 3.7 billion (about $3.35 billion currently, at 0.91 euros to the dollar), a 16.9% improvement on year-ago pro forma sales. Sales at Aventis Agriculture (Agri) fell 6.4% to euro 1.2 billion. Together, the Life Sciences division saw sales rise 10.3% to euro 4.9 billion.

• EBITA (earnings before interest, taxes, and amortization) in Life Sciences hit euro 821 million for the quarter, a 17.8% improvement over last year. The main source of cost savings came from diminished research and development (R&D) spending, which dropped 19% in Agri and grew only 7% in Pharma.

• Overall net income hit euro 258 million, 63.3% above last year, helped by a 150 basis point reduction in the applicable tax rate.

The big news here is Pharma sales. In 1998, Aventis saw less than a 1% gain in Pharma, while Agri sales fell 5.5%. Last year, Pharma revenue improved 6.9% compared with a 3.7% drop in Agri. Those are not the kind of growth numbers that pharmaceutical investors want to see.

Part of the problem at Pharma last year was that its top-selling product in 1998, Cardizem, a treatment for cardiovascular disease, reached the end of its patent protection in June. Sales of the drug fell 12%, from euro 733 million to euro 642 million.

Three key products stepped into the breach, however. Lovenox/Clexane, a treatment for deep-vein thrombosis, ramped up 42% to euro 782 million, taking over the top spot in Pharma sales. This quarter Lovenox expanded sales 19.3% over last year. It has captured over 25% of its market, which is expected to double by 2003. Furthermore, Lovenox has been approved to treat unstable angina, and it is undergoing clinical trials for five new indications. Two of these have reached Phase III, and two are in Phase II. Sales should easily surpass euro 1 billion in 2001.

Allegra, an antihistamine, received FDA approval in 1996 and got approval in Europe in 1998. Sales puffed up 60% last year to euro 729 million. It added 57% this quarter to last year's first-quarter sales, hitting euro 219 million. Allegra should become Aventis' top product this year, raking in more than euro 1 billion -- perhaps significantly more, if it continues to catch on at its current rate.

Breast and lung cancer treatment Taxotere achieved euro 130 million in sales this quarter, a 57.8% increase. Last year, its sales grew 46% to exceed euro 500 million. Sales of Taxotere are expected to surpass euro 1 billion in 2003.

With three products fixing to attain euro 1 billion in sales, Aventis' Pharma business looks poised to bust out. It also has a well-stocked pipeline, with three products submitted for FDA approval, five more in Phase III trials, and five in Phase II. Management assures investors, too, that it "has identified and confirmed synergies" to the tune of euro 1.2 billion, which are to be achieved by 2002.

Now if it could just find a buyer to take Agri off its hands, Aventis could become one of the premier pharmaceutical stocks out there. Even after its 30% run-up since mid-March, Aventis still looks like a value, considering its potential.

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