Germany's Bayer AG has made several key moves to secure U.S. biotech drug discovery and development expertise, but now it's gone farther, talking with DuPont about acquiring its pharmaceutical division. These efforts position Bayer to expand its global drug reach in anticipation of its Sept. 26 listing on the New York Stock Exchange. The DuPont move might be intended to give Bayer an end-to-end U.S. drugmaking operation, but the fit isn't clear.
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German drug giant Bayer AG (OTC: BAYZF) said it is in talks with DuPont Corp. (NYSE: DD) to buy the Wilmington, Delaware, materials company's pharmaceutical unit. A buy would add to Bayer's drug investments in the U.S. and further position the company for its Sept. 26 listing on the New York Stock Exchange. Bayer is a large, multinational corporation with life sciences, polymers, and chemicals businesses. This could describe DuPont, yet the two companies appear to be moving in opposite directions. Bayer yesterday rejected a shareholder motion to split its pharmaceutical and chemical operations, instead choosing to continue its ongoing plans to bolster and expand its drug business. In contrast, DuPont in December confirmed that it would spinoff or sell its drug making operations. But Bayer has already invested heavily in U.S. biotech drug target discovery expertise and it has its own development machinery and marketing staff. What's in it for the German big gun? Bayer looks to Millennium and CuraGen Apparently the Millennium deal wasn't enough for Bayer, which this January announced the largest big pharma-biotech deal to date, a $1.5 billion pact with CuraGen (Nasdaq: CRGN) aimed at discovering, developing and marketing obesity and diabetes drug targets. Between Millennium and CuraGen, Bayer appears to have secured the starting point of a genomics-era pipeline. DuPont's broader product offerings One possibility is that the purchase would provide Bayer with U.S. drug manufacturing capacity at a time when the pharmaceutical industry is losing profits because companies lack sufficient capacity to turn out their best sellers fast enough. DuPont's U.S. sales force could also position Bayer well to market the fruits of its Millennium and CuraGen deals in North America. A business truism is that anyone can make acquisitions, but it's harder to make the right ones and ensure their successful integration. Bayer may be plotting to put together an end-to-end U.S. drug operation from scratch, but investors eyeing its September listing should wait to see whether a DuPont purchase materializes and whether Bayer can make it work. Tom Jacobs (TMF Tom9) currently causes others to need prescription drugs but takes none himself. At press time, he owned no shares in companies mentioned in this story. To see his stock holdings, view his profile, and check out The Motley Fool's disclosure policy.
Bayer faces criticism for its meager drug candidate pipeline and lack of genomics-based drug target discovery expertise. Hoping to address the problem, in 1998 it plunked $465 million into U.S. genomics-based development-stage drug maker Millennium Pharmaceuticals (Nasdaq: MLNM). Bayer got a 14% stake in the company and the right of first refusal to develop drug candidates for Millennium-supplied drug targets. Early this year, the two companies announced that in record time they had brought their first drug candidate from the deal to readiness for human trials.
DuPont Pharmaceuticals brings a broad portfolio of existing, newer, and developing drugs. Its slew of well-known mature drug products include the anticoagulant Coumadin and several l-dopa products for Parkinson's disease, and it sports newer products such as anti-retroviral HIV treatment Sustiva, which the FDA approved last year. DuPont has an alliance with Barr Laboratories (NYSE: BRL) for generic drugs. The company bought CombiChem, a combinatorial chemistry company, in 1999 to boost its ability to find compounds that work on drug targets. The drugs could be useful, but the rest would duplicate many of Bayer's current European capabilities.
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