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Akzo Plans Share Offering for Its Lagging Drug Unit MARKETPLACE By Bloomberg

Posted on: Wednesday, 8 February 2006, 12:00 CST

By Antonio Ligi

Akzo Nobel, the world's largest maker of paints and coatings, said Tuesday that it would sell shares in its lagging drug unit this year. The stock rose to a three-year high.

Organon Biosciences, the pharmaceuticals unit of the Dutch chemicals group, will have an initial public offering in the second half of the year, with Akzo selling the rest within three years, said Toon Wilderbeek, who runs the company's drug operations. Geert- Jan Hoppers, an analyst at Van Lanschot, estimated that Organon may be worth as much as 9 billion, or $10.7 billion.

Akzo's drug sales were up 3 percent in 2005, less than half the average increase in the pharmaceuticals industry, as the unit struggled with the patent loss for its Remeron antidepressant. Akzo, based in Arnhem, the Netherlands, also said Tuesday that its fourth- quarter earnings doubled to 317 million from 153 million a year earlier, as it dissolved pension provisions and received a payment from Barr Pharmaceuticals to settle a dispute abouta generic version of Mircette, a contraceptive. Organon had revenue of 3.5 billion in 2005, about a third of revenue from its chemicals and coatings units. Its sales fell in 2004 and 2003 because of declining revenue from Remeron.

"Selling the drug unit is going to focus the company," said Patrick Casselman, a fund manager at KBC Asset Management in Brussels. "The earnings were also better than expected. It is a good day for investors."

Akzo Nobel shares rose 2.48, or 6 percent, in Amsterdam, closing at 42.85, the highest price since July 2002. The spinoff plan may turn both divisions into takeover candidates, analysts said. Akzo Nobel is among the few remaining European companies with both drug and chemicals divisions. In the past five years, BASF, AstraZeneca and Novartis divided those operations.

Akzo is working with Pfizer on an anti-psychotic drug, asenapine, for which the results of final-stage tests are expected by November this year. In December 2005, Akzo's chief executive, Hans Wijers, said that asenapine might bring in as much as $2 billion and could help "fix" the company's pharmaceutical unit, which includes animal health products.

A failure of asenapine may affect the timing of the IPO, although the share offering does not depend "only" on asenapine's success, Wijers said Tuesday. Akzo and Pfizer will ask for U.S. approval of asenapine by the beginning of 2007, and the product is expected to go on sale in 2008, according to Wilderbeek of the drug unit. The company plans to invest between 450 million and 500 million in research and development for its drug unit in 2006, said Rob Frohn, its chief financial officer. Aside from asenapine, Akzo's drug business is developing other experimental products, Frohn said, but he would not comment on how the company might act should asenapine fail in Phase 3 testing.

Wilderbeek said the company was hoping to bring a human flu vaccine to market in 2009. He also said that Organon Biosciences would focus on health treatments for women, antidepressants, immunology and cancer treatments.

"This is a good move as the management keeps control of the situation and doesn't leave the future strategy to speculation," said Hoppers, the Van Lanschot analyst. "They wouldn't have done it if they weren't convinced about the success of asenapine."

Akzo said sales in its coatings unit rose 6.1 percent to 5.56 billion in 2005, while sales at its chemicals unit rose 4.1 percent to 3.89 billion. Together, the coatings and chemicals units had 9.4 billion in sales last year.

The company is working on acquisitions in coatings in the size of 100 million to 200 million, while its animal health unit would like to make acquisitions in the U.S. pet market, Frohn said.

Source: International Herald Tribune

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