FRANKFURT Shares in Bayer BAYG.DE slumped as much as 5.6 percent on Tuesday after a U.S. court voided a key patent on its Yasmin oral contraceptive drug, prompting the German group to tweak its healthcare margin goal.
The court ruling capped years of legal wrangling and paved the way for Barr Pharmaceuticals Inc BRL.N to sell a generic version in the U.S. market.
Bayer disagrees with the court's decision and said it will consider its legal options.
Bayer shares were down 4.5 percent at 47.96 euros at 5:55 a.m. EST, compared with a 0.3 percent decline in the pan-European DJ Stoxx drug index .SXDP.
Yasmin had sales of 321 million euros ($487 million) in the United States, the world's largest healthcare market, last year. Including other Yasmin franchises such as the lower dose version YAZ, sales amounted to 1.0 billion euros in 2007.
They were Bayer's top-selling drugs, slightly ahead of its multiple-sclerosis drug Betaseron.
Bayer, which invented aspirin more than a century ago, inherited the drugs following its 17 billion euro acquisition of Schering in 2006 to boost its healthcare business.
Analysts now fear the loss of the key patent on Yasmin could threaten its intellectual properties protecting YAZ.
"Should YAZ also prove in due course vulnerable to generic competition, the issue becomes more serious -- probably three times the impact overall," said Citibank analysts Andrew Benson and Joanne Jerman, in a note. Analysts said YAZ had 10 patents as compared to three in Yasmin.
Bayer said it was evaluating the impact of the court's decision on YAZ, adding that it retained marketing exclusivity for YAZ in the United States until March 16, 2009.
Bayer now aims for its Bayer HealthCare unit to improve its core earnings (EBITDA) margin before special items "toward" 27 percent in 2008 from 25.6 percent in 2007. Its 2009 margin target of around 28 percent remained in place, it added.
It had previously targeted a 2008 healthcare margin of about 27 percent.
Bayer had also filed a patent infringement suit against Watson Pharmaceuticals Inc WPI.N after the U.S. company filed an application with the U.S. Food and Drug Administration seeking approval of a generic version of YAZ.
Richard Vosser, an analyst at Bear, Stearns, said his estimates for Bayer had fully captured the generic risks to both Yasmin and Yaz.
"We would be buyers on share price weakness due to this news; in view of the recent sell-off, we believe the shares are good value," Vosser said in a note, adding that the entire U.S. core earnings contribution from the Yasmin franchise was about 4 percent of the group core profit.
Bayer shares have fallen to their lowest level since April last year, weighed down also by a series of negative news at its healthcare unit, including the lack of benefit of high dose Betaseron, the failure of its cancer drug Nexavar in lung cancer and the suspension of its anti-bleeding drug Trasylol.
But many analysts are sticking to Bayer as they bet on the blockbuster potentials of Nexavar and blood thinner Xarelto and also an upbeat outlook for its crop protection business.
(Editing by David Cowell)