German drugs and chemicals group Bayer raised its profit outlook on strong sales of drugs such as multiple sclerosis treatment Betaseron and higher savings from the integration of Schering, sending its shares higher.
Bayer, which more than a century ago invented Aspirin, boosted its healthcare business last year with the 17 billion euro ($23 billion) acquisition of rival Schering, enabling it to compete more effectively with industry giants.
"We expect the underlying EBITDA (earnings before interest, tax depreciation and amortization) margin for the Bayer Group as a whole to exceed 20% this year, and we are aiming for a margin above 22 percent by 2009," Bayer Chief Executive Werner Wenning said in a statement on Tuesday.
“With this target, we are headed toward a new order of magnitude for Bayer in terms of earnings and underscoring our confidence in the earning power of our healthcare business," Wenning added.
The statement comes as the company is holding a conference for investors about its healthcare unit in Leverkusen, Germany.
The company had previously expected to slightly improve on the prior-year margin of 19.3% in 2007 and achieve a margin of about 22% starting in 2009.
Bayer shares were up 1.1% at 56.68 euros at Frankfurt close.
There had been widespread market speculation that Bayer would revise up its profit margin target following the robust performance of its healthcare unit in the first quarter. The division's sharp improvement in profit was due to strong sales of drugs such as Betaseron and synergies from the integration of Schering.
Last year, Bayer's healthcare division accounted for about 40% of group sales and nearly half of underlying operating profit -- and industry analysts expect healthcare to be an increasingly important driver as new drugs fuel growth.
The stock has risen almost 40% this year, outshining a 20% gain in the DJ Stoxx pan-European chemicals sector and making Bayer the second-best performing stock in the sector. The pan-European healthcare index has fallen 1.7% over the same period.
Bayer said it was confident of achieving synergies from Schering of more than 800 million euros compared with the previously planned 700 million euros by 2009.
"We also anticipate that we will achieve 80% of the synergies already by the end of 2008," Wenning said.
For its healthcare unit, Bayer said it expected the 2007 core margin before special items to rise to 25% from 24% previously.
By 2009, that unit aimed to raise its underlying EBITDA margin to around 28%, compared with the previously forecast 27%, Bayer said.
Bayer also said its new drug pipeline comprised 14 projects in Phase I, 17 projects in Phase II and 19 projects in Phase III, with a further nine projects already submitted for marketing authorization.