Rhone Poulenc Still Can't Get Any Respect

Rhone-Poulenc chief Jean-Rene Fourtou wishes the market would give his company some credit. Fourtou has made huge strides in turning his $17 billion company into a global player in pharmaceuticals and chemicals. He has sold off commodity businesses and made $11 billion worth of acquisitions in pharmaceuticals, specialty chemicals, and agricultural products. In the latest deal, Rhone-Poulenc Rorer, a big U.S. drugmaker that is two-thirds owned by the French company, bagged British drugmaker Fisons PLC for $2.9 billion. The move boosts Rhone from 14th to 11th place in the global rankings of pharmaceutical companies.

All of this has increased profits and future prospects. Yet Rhone's share, at $20 on the Paris exchange, is down from $27, the initial offering price when the French government sold its shares to the public in 1993. Fourtou blames the weak French market and other factors. "It's annoying," he says. "It's a sad situation for stockholders." But it's also a sign that Fourtou has further herculean labors to accomplish before he can make his pharmaceutical acquisitions pay off big. Some analysts even suggest that splitting the company into two parts would unleash faster growth in his drug business.

HALFWAY THERE. What is clear from all of Fourtou's activity is that he is only a bit more than halfway toward creating the kind of pharmaceutical powerhouse he wants Rhone-Poulenc to be. At 16%, the operating margin of Rhone-Poulenc Rorer is well below the 30% level of giants such as Glaxo-Wellcome or Eli Lilly & Co. And there's no blockbuster drug yet to turn out annual sales of $500 million a year or more.

Michel de Rosen, whom Fourtou has put in charge of Rhone-Poulenc Rorer, intends to find his champion products in four key therapeutic sectors--cancer treatments, blood-plasma proteins, anti-infective drugs, and allergy and asthma medicines. "We can't expect to be a leader in eight areas," he says. "Four is enough."

Despite the debt load from the Fisons deal and the need to improve margins, the drug ventures are promising. Fisons, which specializes in asthma drugs and the devices used to inhale them, makes Rhone the world's fourth-largest marketer in this category. Taxotere, a treatment for breast cancer that Oppenheimer & Co. analyst Steven B. Gerber expects to generate revenues exceeding $50 million a year by 1997, should get Food & Drug Administration approval in the U.S. soon.

Fourtou is also spending $100 million a year on gene-therapy and cell-therapy research. Rhone-Poulenc Rorer has set up RPR Gencell, a partnership with 14 biotechnology companies and research institutes. "That may well be their most important strategic move for the future," says Samuel D. Isaly, a partner at Mehta & Isaly, a New York health-care investment company. Rhone has also just completed the acquisition of Applied Immune Systems, a member of the consortium that specializes in cell- therapy technology.

SPIN-OFF TIME? But Rhone's chemical operations obscure what's going on in pharmaceuticals, which in the first half of 1995 made up 70% of its profits but less than half of its sales. Heavy restructuring charges, mainly in the chemical sector, have also pulled down Rhone-Poulenc's net earnings for the third year running.

Looking for cleaner plays in both pharmaceuticals and chemicals, some analysts would like to see Rhone-Poulenc follow the same route as Imperial Chemical Industries PLC, which spun off its pharmaceutical business to investors as a new company, dubbed Zeneca, in 1993. Both Zeneca and the refocused ICI have thrived as separate businesses. "Managers of big chemical companies are not proven to be good managers of health-care businesses," says one London-based analyst who follows Rhone-Poulenc.

For now, Fourtou thinks that decentralized management can keep both his chemical and drug businesses on a growth track. But last year, Rhone-Poulenc filed documents with U.S. regulators that make it easier for the French parent and Rhone-Poulenc Rorer to team up on deals. Thus, more growth in pharmaceuticals and acquisitions like that of Fisons are likely. "The final shoe may not have dropped yet," says Isaly. "I could see a combination with another [pharmaceutical] group." Until the stock rises, Fourtou's restless reinvention of Rhone-Poulenc will go on.

Before it's here, it's on the Bloomberg Terminal.