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Bayer AG on Wednesday posted third-quarter profits below analysts' expectations but a source said the company was about to shore up its drugs business with an imminent marketing deal with GlaxoSmithKline Plc.

An industry source said Germany's largest drugs group could sign a co-marketing deal with GSK for its new anti-impotence drug vardenafil in the United States in the coming days. Company officials declined to comment.

Glaxo, which has a powerful sales force and is keen to fill a gap in its pipeline by licensing in late-stage products, has long been seen by analysts as a frontrunner to partner the new Bayer drug.

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The two companies have already worked together in marketing the ill-fated cholesterol-lowering drug Baycol/Lipobay, which Bayer was forced to withdraw on safety grounds in August.

"GSK, with its big sales force and previous relationship with Bayer, are the obvious people to partner this product," said Richard Jarvis, pharmaceuticals analyst with Nomura in London. "It makes sense for both companies."

Bayer, which aims to start selling Vardenafil in the second half of next year, will be challenging Pfizer Inc's Viagra and another new drug from Eli Lilly and Co. in the fast-growing erectile dysfunction market.

Several big pharmaceutical companies had been interested in partnering Vardenafil, which, like Lilly's Cialis, acts faster and with fewer side effects than Viagra.

Cialis was filed with U.S. regulators in June, but industry analysts believe it and Vardenafil may be assessed by the same Food and Drug Administration panel next year.

Bayer, whose healthcare division is slumping after the costly Baycol recall, filed a New Drug Application with U.S. regulators for Vardenafil in September. It says the drug could have mid-term annual sales of up to 1-billion euros.

Bayer said in a statement that third-quarter operating profit on continuing operations before exceptionals dropped 90.7 per cent to 66-million euros. Sales from continuing operations fell 5.9 per cent to 6.868-billion euros.

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But it pledged the global economic slowdown would not stop it from making an operating profit in the fourth quarter.

Ten analysts polled by Reuters forecast third-quarter operating profit on continuing operations before exceptionals in a range of 117 million to 462-million euros, with an average of 281-million. Sales were seen at 6.900-billion euros.

Bayer's healthcare division, which contains its pharmaceuticals unit, saw third-quarter operating profit before exceptionals plummet to 24-million euros from 334-million.

Bayer's two largest chemicals divisions - polymers and chemicals - saw margins drop to a quarter and a third, respectively, of last year's levels.

Bayer, the inventor of aspirin a century ago, has been urged for years by investors and analysts to separate its traditionally higher-margin drugs unit from its chemicals segments and unlock the value of the higher-rated business.

Such pressure rose with the withdrawal of Baycol, which was linked with 52 deaths around the world and will cost the company some 800-million euros in operating earnings this year.

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Bayer has also forecast a shortfall of some 300 million euros due to the halting of shipments of haemophilia drug Kogenate in January, when the U.S. Food and Drug Administration found bacteria in some of the manufacturing stages.

On the bright side, sales of top-selling antibiotic Cipro climbed last month as a result of the anthrax scare in the United States. Since early October four people have died of anthrax after inhaling spores from contaminated letters. Bayer chief executive Manfred Schneider said the company expects Cipro sales of up to 2-billion euros this year, up from 1.79-billion last year.

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