Hooked on pharmaceuticals

profile Ian Gowrie Smith Badly battered by the London stock market in 1993, the former Medeva chief tells William Kay how he plans to bounce back with two new ventures
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The Independent Online
LAST Sunday did not quite work out according to Ian Gowrie Smith's preferred script. An Australian and a rugby fan, he did not really believe that the hated English could dare to knock his beloved Wallabies out of the World Cup with the last kick of the match.

Nevertheless they did, and Gow- rie Smith, 47 last Friday, has had to dust himself down and get back to the business of becoming a serious force in the world pharmaceuticals market, just as two years ago he had to recover from a severe mauling at the hands of dealers on the London stock market. On 19 July 1993, shares in Medeva, a then fast-growing drugs group, fell by 100p to 116p when it warned that pre-tax profits would be about pounds 10m lower than the pounds 53m-pounds 57m that the market had been expecting. By the end of that week, they had subsided further to 107p amid reports of overstocking at a Californian subsidiary and complaints by the US Food and Drugs Administration about "adulterated" drugs.

Gowrie Smith was Medeva's chief executive and guiding light. He had built up the group and recruited his chairman, Bernard Taylor, after the latter was ousted from Glaxo. Gowrie Smith is unrepentant about the share collapse, which resulted in his leaving the company. Medeva shares have since recovered to 242p and are once again on a premium rating. Unlike Taylor, he is no chemist: he admits that he went into pharmaceuticals because he noticed that drugs companies had big profit margins and opportunities.

Talking in his latest office overlooking London's Trafalgar Square, he said: "Medeva's success and my own was something that divided the City very greatly. There tended to be those who were passionately my supporters and therefore everyone else, by virtue of the fact that they hadn't profited from being on the bandwagon, was passionately to the other side. The pharmaceutical sector at that time was taking quite a pounding, and the performance of Medeva's share price was quite outstanding against that background noise. It was an accident waiting to happen."

Gowrie Smith has clearly thought long and deeply about the experience. It has left a lasting chip on his shoulder about the City's public school ethos, and what he sees as its prejudice against Australians.

Speaking slowly and hesitantly, he argued: "There was and is a healthy or unhealthy level of antagonism here towards Australians in business. If you are a younger, aggressive Australian, you probably increase that polarisation a little bit. I think that if you were British with my track record you would have had less to overcome than if you were an Australian."

As if that is not bad enough, Gowrie Smith is convinced that he has suffered at the hands of bankers and brokers brought up on cold showers and regular canings. "The British have some peculiar characteristics," he reflected. "One is that they like to give out a good beating to someone, even if they know at the time they are doing it that it is not necessarily deserved. And then they assess your character on how well you take it. It's the public school flogging tradition, if you like, and it would appear that I have managed to earn my stripes by virtue of taking the beating that was handed out and getting on with it."

The "it" in question is more of a them, because Gowrie Smith finds himself involved with not one but two public companies: Black & Edgington and Hewitt Group. Both have attracted a smart following. Hewitt is an industrial ceramics maker, which last week reported a 1994 pre-tax loss of pounds 6.3m after providing pounds 4.6m for closing its German business. That was part of a Gowrie Smith deck-clearing operation which, together with a pounds 4.6m rights issue, has paved the way for a series of acquisitions. "It was mainly happenstance that I got involved with two companies," said Gowrie Smith, "because at any one time you are always assessing a lot of opportunities. Normally one stands out and the others drop out: in this case neither dropped out."

The plan is that Hewitt will, like Medeva before it, be pumped up with earnings-enhancing takeovers and will be largely run by Gowrie Smith's Aussie partner, David Lees.

Black & Edgington will have pharmaceutical businesses injected into it - but then it is earmarked for greater things. Currently a supplier of temporary marquees and crowd-control barriers, B&E is destined to become another pharmaceuticals company, but this time Gowrie Smith is hoping that his shareholders are going to be patient.

"What I'm going to seek to do is to take advantage of a fundamental weakness in the pharmaceutical industry," he explained. "If you are running what I call an earnings-per-share pharmaceuticals company, then you are always confronted by the conflict between investment and research, and the need for profit performance. As a result there is a perpetual danger of sub- optimal financial decisions taking place, where highly desirable and eminently recommendable investment opportunities are declined on the grounds that one cannot afford to injure the profit expectations for that year. That is why there are so many mergers in the pharmaceuticals industry."

Instead, Gowrie Smith casts envious eyes to the US, where many drugs companies pay not a cent in dividends, but the shares still trade on 30 or 40 times earnings. He envisages what many in the UK pharmaceuticals industry would see as a dream scenario: to spend up to five years creating a product pipeline, without the need to deliver boring old dividends.

He concedes that eventually he will have to do so, but in the meantime he wants to appeal to his fan club "to ignore profits or losses for the first three years, on the grounds of the creation of wealth that will take place after three to five years". This strategy depends on the growing store of value being reflected in a renamed, revamped B&E share price. If not, he is wide open to predators.

This would seem poetic justice to Gowrie Smith's many detractors, who see him as little better than a share-promoting opportunist.

Born 500 miles west of Sydney, he was the first in his family to break out of the farmyard, with the encouragement of his mother, the daughter of a banker, and the sight of the Sydney stock market enjoying continual booms.

After four years at the exclusive Geelong Grammar School and a commerce degree at Melbourne University, majoring in the theory of economic cycles, Gowrie Smith spent his early years with the mining group BHP and the local subsidiary of the UK entrepreneur John Bentley's Vavasseur before setting himself up as an investment consultant.

In the space of three years in the mid-1980s, he won control of and sold Griffiths Brothers, a tea company he magnified 30 times by injecting mining companies. Then, just as the London stock market was stoking itself up for the 1987 crash, Gowrie Smith landed in Britain.

Why? "You only get one shot at it," he observed, "and I wanted to experience a whole facet of life that you don't find in Sydney. It was the best move I ever made. I considered Hong Kong, California and New York, but London has the best balance of a strong financial community and a good place for my children to be educated and have a good quality of life."

His eldest son has just won a place at Harrow but the family, including another son and a daughter, are not allowed to forget their roots. He has the money to fly them back to Australia at every opportunity.

Gowrie Smith expects to end his days back home, but insists that B&E is his last corporate resting place. "This is my last hurrah. Maybe I want to concentrate on making that a spectacular success. It's not just the money: what stimulates me is to set about creating something - and to do it."