In addition to the Chiron Diagnostics purchase, Bayer entered into a 5-year, $465 million agreement on September 23 with Millennium Pharmaceuticals to discover 225 new drug targets in 7 disease areas including osteoporosis and cancer. Industry analysts think the deal signals Bayer's realization that the future lies with genomics.

Bayer will make an initial payment of $130 million consisting of a $96.6 equity investment for 14% of Millennium, plus a $33.4 million license fee. The remaining $335 million will be paid out in research funding and target-delivery payments. The Millennium deal "gives us a pipeline of new drug targets," says Bayer's Seaton. "Coupled with our expertise in discovery and development, we expect to generate marketable products out of it." Any targets that Bayer does not choose to further develop will be returned to Millennium to fuel its own drug pipeline. Millennium retains rights to resulting diagnostic products.

So what has prompted the two deals? "Life sciences are the future markets," says Bayer spokesperson Christina Sehnert. Seaton supports this: The two deals "show the continuing if not an increasing focus by Bayer on life sciences."

Michael King, analyst at BancBoston Robertson Stephens (New York), puts it another way. "If you talked to people in the industry and asked who are the companies that need to shake up their R&D, I think Bayer would be one of the ones that comes up," he says. "This is a company that's lagged behind the industry in terms of life-science R&D."

"Bayer recognized that access to a genomics capability was becoming increasingly important,"says Sally McCraven, Millennium corporate communications director.

"Any big pharmaceutical company that hasn't made a significant investment in genomics, either internal or external, will be functionally extinct in the next couple of years," agrees Richard van den Broek, analyst at Hambrecht & Quist (New York).

So will this deal spark a trend? "It's a wake-up call for other pharmaceutical companies that need to access targets," says Nick Woolfe, analyst at BancBoston Robertson Stephens (London). But van den Broek says it's hard to speculate about who will be next because of the many potential partners but lack of potential providers. "The universe of companies focused on genomics will be the beneficiaries of broader pharmaceutical interests for the next couple of years," he says.