Business Week | December 20, 1999 | Amy Barrett in Philadelphia
Over the past few years, companies such as Novartis and Monsanto built up a portfolio of businesses, including agricultural biotechnology and pharmaceuticals, and, according to this story, labeled themselves life-sciences companies. The idea was that these companies would use emerging biotechnology to promote good health through everything from new drugs to disease-fighting foods.
These days, however, the story says that many of those same companies are scrambling to cast off the life-sciences moniker. On Dec. 2, Novartis and AstraZeneca PLC announced they were spinning off and merging their agricultural businesses, which include traditional crop-protection products such as pesticides as well as bioengineered seeds. That will free up both companies to focus instead on their respective drug operations. American Home Products Corp. is said to be searching for ways to unload its agricultural business, which is heavily weighted toward traditional crop protection, while Monsanto Co. faces mounting pressure from investors to split up its drug and biotech agricultural operations.
Why the sudden reversal? The story says the consumer backlash against genetically engineered foods continues to grow in Europe, and it shows signs of gaining traction in the U.S. That makes the business of marketing genetically engineered seeds a risky one. At the same time, the U.S. farm economy remains in the dumps, hurting sales of traditional herbicides and pesticides. Most important, the synergies promised by combining agricultural biotechnology and drug research have not materialized.
Stephen S. Tang, national director of consulting firm A.T. Kearney Inc.'s health-care-industry practice was quoted as saying the life-sciences label "was simply a way of packaging very disparate lines of business in those companies."
The recent dealmaking may force other players to respond. Aventis, the company being formed by the merger of Hoechst and Rhone-Poulenc, plans to focus on pharmaceuticals and agricultural businesses, including crop protection and genetically modified seeds, after spinning off industrial operations such as chemicals. While the company shows no signs of backing away from its agricultural unit, analysts figure the formation of a giant new competitor from the Novartis and AstraZeneca spin-off will force Aventis to examine whether it needs to bulk up its ag unit.
DuPont, among the most aggressive players with its recent $7.7 billion acquisition of bioengineered seed company Pioneer Hi-Bred International Inc., may also have to make some adjustments. DuPont is still trying to land a deal to expand its pharmaceutical business. Analysts say that could take the form of a joint venture with a midsize drug company such as Pharmacia & Upjohn Inc. But while analysts figure DuPont will press ahead with that effort, many figure the company's plan to create a life-sciences tracking stock, which would mirror the performance of its drug, agricultural, and nutritional units, is now on the back burner.
