Bayer Finds Partial Pharma Partner In Aventis Blood Products Joint Venture

Bayer/Aventis Behring's blood products joint venture would partly accomplish Bayer's goal of finding a strategic partner for its pharmaceutical business.

The companies announced the signing of a non-binding letter of intent to combine their respective blood products sectors Feb. 20.

The deal includes marketing rights to each companies' hemophilia A products: Aventis' Helixate FS/NexGen and Bayer's Kogenate FS . Both Factor VIII products are currently manufactured by Bayer.

The agreement could foreshadow Bayer's eventual acquisition of Aventis' entire therapeutic proteins business. Bayer would own a "substantial majority interest" in the venture with "the option of acquiring the remaining interest" in the joint venture "at a later date," Bayer said.

"Aventis would have various defined options for the future of its stake in the business," Aventis added.

The potential for Bayer to acquire Aventis' proteins business is a turn of events for the German company, whose pharma business prospects were recently challenged by the Baycol withdrawal and ongoing manufacturing problems with Kogenate.

Distribution of Kogenate and Helixate was interrupted in March 2001 after Bayer received an FDA-483 GMP warning letter. Bayer expects its Kogenate supply to reach 80% of 2000 levels in 2002 (¹ (Also see "Bayer Kogenate FS Supply To Reach 80% Of 2000 Factor VIII Levels By 2002" - Pink Sheet, 20 Aug, 2001.), p. 19).

Bayer had considered exiting pharma altogether, but decided to retain the business as a "core" area. The company has formed separate business units "to achieve greater flexibility for necessary strategic partnerships" (² (Also see "Bayer Pharma Sale Remains Long-Term Option; CFO Wenning To Become CEO" - Pink Sheet, 17 Sep, 2001.), p. 21).

The terms of the deal accomplish Bayer's stated goal of retaining a majority share in any agreement; the firm recently announced it was in discussions with various companies, but said it intended to "remain in the driver's seat" (³ (Also see "Bayer Seeking Smaller Pharma Partner; Will Retain Majority Share In Deal" - Pink Sheet, 28 Jan, 2002.), p. 21).

At the time, Bayer indicated it was actively pursuing relationships with smaller, specialized players, noting that its insistence on retaining a majority interest was an obstacle to signing with larger companies.

While Aventis is by no means specialty pharma, the deal could offer a graceful exit from therapeutic proteins. The company has been selling off its lower-margin businesses, including CropScience to Bayer and the animal nutrition unit to CVC Partners.

Aventis is the former Centeon blood products joint venture between Hoechst Marion Roussel and Rhone-Poulenc Rorer. The venture experienced significant GMP difficulties, culminating to a consent agreement with FDA in 1997.

The Hoechst/RPR venture also may have provided an impetus behind the eventual Aventis merger in 1999, and likely made competing offers difficult.

Blood products is a small part of Aventis' business, comprising 5% of consolidated sales. Unit sales declined by 1.7% to approximately $984 mil. (1.13 bil. euro) in 2001, partly attributed to Helixate supply problems related to Bayer's GMP issues.

Aventis expects the blood products venture to close by mid-year. Following weeks of market speculation on the discussions, Aventis made the first official announcement of the talks with Bayer Feb. 13 (⁴ (Also see "Aventis/Bayer Plasma Business Decision To Be Made By End Of June" - Pink Sheet, 18 Feb, 2002.), p. 15).

The joint venture would propel Bayer/Aventis to the number-one position in the $6 bil. blood products market after Baxter, according to Bayer estimates. Bayer and Aventis currently rank second and third, respectively.

By 2004, Bayer predicts it will control 19.2% of the total market, with Aventis holding 17.2%, for a combined 36.4% share. Baxter's share will be 33% in 2004, according to Bayer's estimates.

In addition to owning the majority interest, Bayer will have "operational control" in the joint venture. Bayer Biological Products General Manager Gunnar Riemann, PhD, and Aventis Behring CEO Ruedi Waeger, PhD, will "jointly manage the integration process" and "assume leadership positions."

The venture is expected to create manufacturing efficiencies in quality assurance, manufacturing capacity and product technologies. Aventis suggested it could result in technological advantages that increase product yields from raw plasma.