Bayer, the German pharmaceutical’s group, reported a 37 per cent slide in third-qarter pre-tax profits to €387 million (£262m) due to the costs of integrating its €17 billion acquisition of drugmaker Schering earlier this year.
However, Bayer’s results beat market expectations after delivering underlying earnings of €798 million, up from €653 million in the previous third quarter, as sales from the freshly acquired Schering healthcare business made their first contribution.
The German drugmaker booked around €100 million in Schering-related special charges in the third quarter and the group warned investors that it would book another €400 million in one-off charges relating to the integration in the fourth quarter. The quarter will also include €300 million in writedowns and other accounting charges
Management said underlying earnings would “significantly improve” this financial year. Bayer is set to produce €5.7 billion in underlying earnings before interest tax depreciation and amortisation, including €0.7 billion from the Schering business. Excluding its recently divested diagnostics business, earnings in 2005 were €4.8 billion.
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Overall, sales in the third quarter were up 26 per cent to €7.8 billion. Pharma sales were up 138 per cent to €2.4 billion with Schering contributing €1.4 million.
Sales in its key multiple sclerosis drug Betaferon were up 10 per cent. However, its kidney cancer drug Nexavar continued to significantly underperform its main rival, Pfizer’s Sutent.
The profit margin in its healthcare business was 25.3 per cent during the quarter but is expected to be 22 per cent across the whole of 2006 due to increases in research and marketing costs in the fourth quarter.
While most of its divisions performed strongly, there were two underperformers - its crop protection business was down 11 per cent while the environmental sciences unit was down 8 per cent.
Bayer agreed to sell its diagnostics unit earlier this year to engineering and technology group Siemens for €4.2 billion, with the deal approved by the European Commission late last month. Last week, Bayer said it plans to sell HC Starck, one of its chemicals businesses, to a consortium comprising Advent International and the Carlyle Group for €700 million plus debt.
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James Knight, an analyst with Collins Stewart, commented, “Bayer is off to a good start with Schering.” Sales of Schering’s contraceptive pill Yasmin were “much stronger than expected”, Mr Knight said.
Shares in the group were up more than 2 per cent this morning to €39.86.