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Life Sciences Companies divorce agrochem operations - Views on News from Equitymaster
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  • Jul 14, 2000

    Life Sciences Companies divorce agrochem operations

    The wheel seems to have come a full circle for life science companies. The last year has seen an across the board spin off of their agro–chemical arms by the life science (a euphemism for a conglomerate of pharmaceutical and agrochemical operations) corporations.

    Novartis (formed with the merger of Ciba and Sandoz) de–merged its agro chemical arm and proposed a merger with Zeneca (the agro–chemical arm of Astra–Zeneca) to form Syngenta. Aventis Crop Science came into being with the merger of the agro–chemical arms of Hoechst Marion Roussel and Rhone Poulenc. Then American Home Products announced the sale of its agro–chemical business Cyanamid to the German specialty chemical conglomerate BASF.

    Why has this happened? Why have international pharmaceutical majors gone back to the core competence mantra? Till the last year it was the pharmaceutical operations of the life science corporations, which were supposed to finance the biotech revolution. What has changed?

    The answers were provided by Mr. Edward Schillinger, Managing Director, Novartis India at last week’s analysts meet. He said that there were two reasons for these developments. First, was the realisation, among life science companies, that there were hardly any synergies between the pharmaceutical operations and the agrochemical operations of the life science companies. The two catered to totally different markets and the type of personnel running the two operations were different. It was equivalent to running two businesses under the aegis of one company.

    The second reason for the hive off was the pressure from the shareholders. This was due to the fact that last year was a bad year for the agrochemical business. (Even otherwise the returns from the pharmaceutical business are relatively higher than the agrochemical business.) Hence it was imperative that the shareholders interested in the pharmaceutical business were not deprived of their returns, which were otherwise getting averaged out by the lower returns from the agrochemical operations.

    This would however imply that agro–chemical firms will have to fund their forays into biotech, gentology and tissue culture on their own. Mr. Schillinger, however clarified that the agrochemical businesses were not unviable businesses. These were sound businesses, which could very well finance their ambitious plans.

    Infact, after the recent round of restructuring there would be around five firms, the world over which would dominate the agrochemical business. These include Monsanto (which ironically has proposed a merger with pharma major Pharmacia & Upjohn), Aventis Crop Science, Syngenta, Bayer and BASF–Cyanamid.



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