| BUSINESSWEEK ONLINE : APRIL 12, 1999 ISSUE | ||||||||
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| INTERNATIONAL COVER STORY
Investors, Don't Sow Your Seeds Too Soon To hear DuPont (DD) and Monsanto (MTC) tell it, the life-sciences business has limitless potential. But for those looking for an opportunity to invest, the key word is ''potential''--the big payoff from biotech agriculture will likely be years in coming. Investors need to pick players that not only have an edge in developing genetically engineered products but also have solid growth in other, less glitzy businesses. The life-sciences company best able to fill both halves of that equation is Monsanto. It is the clear leader in biotech crops, but more important, Monsanto's traditional drug business is getting a big boost from its hot new arthritis treatment, Celebrex. Merrill Lynch & Co. analyst John E. Roberts figures Celebrex will hit $2 billion in sales by 2002. Combine that with the strong ag business, and Roberts expects Monsanto's earnings per share will soar 88% this year and 33% in 2000, to 75 cents and $1, respectively. The stock now trades around $46 per share, but Jeffrey Cianci, portfolio manager at Jesup Capital, says a fairer price for Monsanto would be $70. HEADWIND. The outlook is not so rosy for life-sciences companies that still have a big stake in cyclical businesses. DuPont Co. generates just under 14% of its $25 billion in annual revenues from life sciences. To give Wall Street a better handle on the returns of its new ventures, DuPont announced plans in March to create a tracking stock for its life-sciences business. But Merrill's Roberts says that DuPont's current share price of about $57 already places a fair valuation on both life sciences and other operations. Dow Chemical Co. (DOW) is also facing heavy pressure in commodity chemical businesses--with no upturn in sight. While Dow management is doing a good job, HSBC Securities analyst Paul T. Leming notes: ''The question is how long it takes--one, two, or three years--before the wind is at their back instead of in their face.'' Pharmaceutical companies trying to break into life sciences at least have the advantage of a robust underlying industry. But they still need enough new drugs in the pipeline to support growth until agro-tech investments kick in. Sanford C. Bernstein analyst Dr. Terrence W. Norchi has a hold rating on Novartis (NVTSY), even though the stock is trading at more than a 20% discount to its rivals. Norchi worries that because Novartis doesn't have a stellar pipeline of new drug and ag products, annual sales and earnings could grow only 5% and 8% respectively over the next five years. The merger of Zeneca Group (ZEN) with Swedish competitor Astra (A) to form AstraZeneca PLC may offer investors a better option. Analyst Viren Mehta of Mehta Partners LLC expects the combined company to generate significant cost savings. Zeneca's stock, currently at $48 a share, is under pressure on Wall Street assumptions that Astra's $5 billion ulcer drug Prilosec will face swift competition from generic knockoffs when its U.S. patent expires in 2001. But Mehta expects a string of secondary patents to keep rivals at bay for a while. There is less enthusiasm for the other pending life-sciences merger--Hoechst (HOE) and Rhone-Poulenc (RP). The new company, Aventis, plans to dispose of its chemical businesses, but that could take some time. Aside from Hoechst's $470 million allergy drug Allegra, Mehta doesn't see any stars in the two companies' drug lineups in the near term. And that could well outweigh any jazzy new engineered crops in the labs. By Amy Barrett in Philadelphia _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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