Business Comment: Fisons can't afford to be too choosy

We've known for a long time now that Fisons is a company without an independent future; the only question was who, if anyone, was going to put it out of its misery. In opening merger talks with Medeva, an upstart in the pharmaceuticals business by comparison with the Fisons pedigree, the new man at the helm, Stuart Wallis, may have hit on an ingenious alternative.

That radical change was on the way was obvious the moment Mr Wallis became chief executive in September. Having no experience of pharmaceuticals, but having been part of the team that turned Bowater from paper to packaging, he brought with him no preconceived notions about the industry.

That became clear last month, when the company announced the £202m sale of Fisons' research and development arm to Astra of Sweden. R&D has always been seen as the beating heart of any self-respecting drugs operation, delivering the innovative compounds that will become the billion-pound earners of the future. To sell it seemed like an admission that the company as it stood had no viable future.

The merger of Glaxo and Wellcome has thrown into stark contrast the ballooning cost of maintaining such operations. Together, the two companies spent £1.2bn last year on their teams of researchers and hi-tech research establishments on both sides of the Atlantic. That is set to be savagely pruned by the Glaxo management, which has targeted lower costs as a key factor in making the merger work. Even so the amount Fisons had to spend was peanuts by comparison. Glaxo's actions have also rammed home that delivering low-cost medicines, rather than developing new wonder drugs at any cost, will be the name of the game in the last years of the 20th century.

Mr Wallis came to the view that what is true for the giants applies even more for a relative minnow like Fisons. Having hawked it around every pharmaceuticals group worth the name in Europe and beyond, he has hit on Medeva to put theory into practice. Medeva has come from almost nowhere since former Glaxo chief executive Bernard Taylor boarded the former Medirace five years ago. Despite a profits warning that halved the value of the shares at one stage in 1993, the shares more than doubled in that period even before the latest takeover speculation. The company's success is based on buying or licensing, rather than developing, low-cost rivals to branded products from market leaders.

A marriage of Medeva with Fisons looks perfect on a number of counts. The former's portfolio of drugs would allow Fisons' European sales force to be adequately used, given the lack of a drugs pipeline with the sale of the R&D operation. Analysts also believe that a bid at the rumoured price of £3 would result in Fisons seeing earnings enhanced by around 5 per cent. Any takeover is also likely to see Medeva management taking an important role in any operation, giving Fisons a much-needed injection of new talent.

On the face of it, then, Medeva has all the right ingredients to put Fisons back on track. Not all is sweetness and light, however. Medeva's main growth still comes essentially from methylphenidate, a compound to control hyperactivity in children that is mainly marketed in the US, while the profit warning and recent legal actions suggest management has lost its footing recently. But then a company with as desperate a need for a partner as Fisons cannot afford to be too choosy.

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