Door still open for agreed takeover of Fisons

Drugs: Hopes fade for white knight in pounds 1.7bn bid as analysts pred ict return of merger mania

MATHEW HORSMAN

Hopes that a white knight might emerge to save Fisons from a hostile pounds 1.7bn bid launched by Rhone-Poulenc Rorer faded yesterday, as at least one competitor, Astra, ruled itself out and Fisons' shares fell 51/2p to end the day at 259p. But RPR senior management left the door open for an agreed offer, lauding the target company's chief executive and suggesting talks could resume.

Commenting on RPR's offer document, published yesterday, Robert Cawthorn, RPR's chairman, reiterated that the 240p a share offer fully valued Fisons, based on publicly available information. He said that Stuart Wallis, Fisons' chief executive, had done an excellent job restructuring his company and he remained "surprised and disappointed" that talks on an agreed deal had failed.

"In these situations, hostile bids can often become agreed bids," Mr Cawthorn said, hinting he would be prepared to meet Mr Wallis again. Fisons, which now has two weeks to publish its defence, had no comment.

Meanwhile, shares in the pharmaceuticals sector on both sides of the Atlantic rose yesterday, as analysts predicted the $200bn-a-year pharmaceuticals industry will again be gripped by merger mania.

Companies big, medium-sized and small are all struggling with the need to contain costs and expand market share. Analysts expect that the top 10 companies, which now control 37 per cent of the market, might take as much as a 50 per cent by the end of the decade.

Nigel Barnes, analyst with Merrill Lynch, says the action will be driven by the need for new products. "In the next five years, there will be a difference between those companies with a range of products and those without. The market is likely to prefer companies with a strong new product flow."

The pharmaceuticals team at NatWest Securities, meanwhile, say cost-cutting will be an equally important influence on company strategy. They expect sales forces to be further pruned, either by companies acting on their own or through mergers like that between Upjohn and Pharmacia, worth $13bn, which is expected to lead to savings of $500m.

"There is still fat in the industry, and consolidation will help you cut some of that," said RPR's Mr Cawthorn. But he stressed that "innovation is the driving force. Eventually the cost squeeze won't be able to cut costs further."

Innovation was the stated reason for Glaxo's pounds 9bn purchase of Wellcome earlier this year. Armed with a portfolio of products soon to be beyond their patent protection, and dependent on just four drugs for 80 per cent of profits, Glaxo was desperate for new products.

But most companies are far more diversified, with a range of drugs in various therapeutic fields. RPR, for example, derived 80 per cent of its profits from 80 different products last year. The company has set out to focus in four or five niche areas, leading with asthma medicine. Fisons' expertise in this field is its main attraction.

Given the varying reasons why companies either merge or seek strategic partners, picking likely winners in the pharmaceutical business is tricky. Likely success stories in the 1990s include Britain's Zeneca, widely tipped as a potential acquisition, and Merck, the US giant.

Analyst agree research and development is key, and companies that spend significantly on developing new products - particularly those associated with gene therapy - will be best placed. They also like firms with good geographic spread, particularly a strong presence in the US market, responsible for 40 per cent of all drug sales.

Pharmacia's merger with Upjohn, unveiled at the weekend, meets the diversification test: the Swedish concern gets a US presence, while Upjohn gains access to Pharmacia's impressive new product list. But is the merger mania a sign the industry is about to return to the heady days of the 1980s? Analysts are split: NatWest calls for a return to annual sales growth rates of 10 per cent by 2000, but others are more cautious.

The industry's fortunes are intimately tied to the political climate. Spiralling health care costs, along with a restructuring of the health care sector in North America and in Europe, saw the growth in spending on drugs tempered sharply in the early 1990s.

But cost consciousness may end up helping the pharmaceuticals business, analysts predict. An ageing population, coupled with pressures to introduce more preventive care in place of expensive hospitalisation, may give the drugs sector pride of place in health care.

Comment, page 17

Pharmaceuticals industry: the global deals

July 93 Merck buys Medco pounds 3.8bn

May 94 Roche buys Syntex pounds 3.4bn

May 94 Sandoz buys Gerber pounds 2.4bn

May 94 SKB buys Diversified Pharmaceuticals pounds 1.4bn

May 94 Hoechst buys Marion Merrell Dow pounds 4.6bn

July 94 Eli Lilly buys PCS pounds 2.6bn

Aug 94 American Home Products buys Cyanamid pounds 6.3bn

Aug 94 SKB buys Sterling Winthrop pounds 1.9bn

Mar 95 Glaxo buys Wellcome pounds 9.0bn

Aug 95 Rhone-Poulenc Rorer hostile offer Fisons pounds 1.7bn

Aug 95 Pharmacia agreed merger Upjohn pounds 8.4bn