HERBAL REMEDIES ROUSE DRUGS FIRMS

PFIZER, the company that makes Viagra, thinks it has found its next
money-spinning medicine. Last week it signed a $32 million deal with
Phytopharm, a British herbal medicine firm, for an anti-fat pill.

The difference with this drugs deal is that it is for a herbal product,
highlighting the value of plant-based medicines. It also comes at a time
when the battle for control of the blossoming herbal medicines market is
hotting up on both sides of the Atlantic.

On the offensive are the large healthcare groups. They are just waking up
to the fact that they are missing out on the significant sales
opportunities that herbal medicines represent. The small European
specialists are battling both to defend their existing markets and to
expand. All of them are targeting the United States as the big growth market.

Germany leads the world when it comes to herbal cures, or phytomedicines,
healthcare remedies based on extracts from plants. Germans spent $3 billion
on herbal medicines last year, almost 50 per cent of the total European
phytomedicines market.

For the majority of German consumers herbal remedies are a part of
mainstream medicine, with approximately 62 per cent of Germans regularly
swallowing the plant-based preparations. Most of the treatments are
reimbursable under Germany's public health insurance scheme; herbal
remedies remain a part of the medical training programme for all German
doctors.

The antidepressant drug of choice in Germany is not Prozac but an extract
of a wild yellow flower, St John's Wort, or 'hypericum perforatum'. More
than 3m prescriptions are written every year by German doctors and the
yellow flower outsells Prozac by more than ten to one.

A handful of German firms dominate the field, although there are estimated
to be hundreds of small herbal medicine manufacturers in Germany. The big
three are privately owned Schwabe, Berlin-based Lichtwer, and Madaus. Until
the interest of the big healthcare companies was aroused, the German and
European markets had been theirs to enjoy almost exclusively.

In the US the sector is being driven by increased demand from consumers.
American sales of the St John's Wort antidepressant, manufactured by
Lichter, reveal the dramatic growth possible. In 1996 sales of the drug
were $70,000, last year they soared to $43m and this year the company
predicts sales will reach $100m. Lichter now anticipates total global sales
for the year of approximately Dm300m ($167m). "Last year there was almost
100 per cent growth in the US market," says Dr Joerg Gruenwald, president
of Berlin-based Phytopharm Consulting.

But the American market for phytomedicines is still wide open. The current
leaders are the larger European phytomedicine firms that saw the gap in the
market before anyone else. Schwabe got together with Madaus and an American
group, Murdock, in 1992, to approach the American market with a joint
venture, Nature's Way. Lichtwer has a US subsidiary, as has Boehringer
Ingelheim, the German healthcare group, through Pharmaton.

The battle for market share is now on. "You have major US pharmaceuticals
firms coming in and buying companies, introducing some of their own lines,
buying smaller companies lines or buying from Europe. The industry is going
through an incredible phase of development," says Mel Eaves, Schwabe's
international business manager.

American Home Products (AHP), Warner-Lambert and Bayer Corporation, the
American arm of Bayer, the German pharmaceuticals firm, are all set to
launch herbal products in America in the next two to three months. AHP,
which is due to merge with Monsanto, is planning to spend $25m in the next
year on advertising and marketing herbal products, which would be sold
under its German vitamins brand. The first six products - gingko, St John's
Wort, ginseng, echinacea, garlic and saw palmetto - will be launched in
October. All are top selling herbals in the US this year (see table).

Last month AHP's over-the-counter (OTC) arm, Whitehall Robins, swallowed
Solgar; a US herbs, vitamins and minerals manufacturer. The deal is
estimated to be worth $400m, or four times Solgar's sales. AHP already has
a German outfit, Dr Much, which it acquired at the start of the decade. It
has also signed a manufacturing agreement with Pharmaprint, a Californian
herbal medicines maker.

Bayer's line of phytomedicines, which will be sold alongside its
one-a-day-vitamin line, is due out now. The German group is already
marketing herbal products in its domestic territories and last year setup a
joint venture with Ulrich, the Italian herbal medicine company with the
intention of launching across Europe. Warner-Lambert, the healthcare giant,
is expected to announce the launch of its first two herbal products next
month.

Phytomedicines are becoming mainstream in America, with some American
health insurance schemes, such as Seattle-based Blue Cross and Oxford
Health plan, now reimbursing phytomedicines.

It is not just American healthcare firms that are turning on to herbals.
Switzerland's Novartis, through its precursor companies, Ciba and Sandoz,
has steadily acquired herbal manufacturers over the past decade. It is
beginning to pull these interests together. Roche markets several herbal
products and says the sector is an important business area of its OTC
medications arm, representing around 10 per cent of total OTC turnover. Two
years ago it acquired Elja Rogoff, a family-owned German herbal outfit.
SmithKline Beecham has also snapped up Abtei, a German herbal firm.

Schwabe and Lichtwer, though adamant that they want to remain independent,
acknowledge that change is inevitable. "The market is changing very fast
and we might have to adapt. We could be forced into a 50:50 joint venture,
but that is the most we would do," says Dr Frank Michel, vice-president of
marketing and sales at Lichtwer. Mel Eaves of Schwabe says: "The kind of
expertise that Schwabe has accumulated is not easy to duplicate - unless
you acquire someone at the top end of the phyromedicines scale."

Michel adds: "We are still spearheading the phytomedicines sector but the
real question is whether experience can win over size."

Checked-by: Pat Dolan