Limbering up for drugs bid battle; THE MONDAY INTERVIEW; Stuart Wallis

Fisons' chief executive, who today unveils his defence to the hostile bid from Rhone-Poulenc Rorer, talks to Magnus Grimond
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The Independent Online
September could be a momentous month for Stuart Wallis. After only a year as chief executive of drugs group Fisons, today he faces probably the biggest test of his career as he fends off the unwanted pounds 1.7bn bid from French-owned US rival Rhone-Poulenc Rorer.

He promises a robust response, and he's "extremely confident" that Fisons will escape the clutches of RPR at the offered price of 240p a share.

The defence will centre on Fison's new inhalant devices for its anti- asthma drugs which, Mr Wallis claims, could extend the commercial life of elderly drugs going off patent by as much as 10 to 12 years. A second- generation device which uses CFC propellent gas is already said to be a world leader. But the jewel in the crown is the Ultrahaler, claimed to be at the leading edge of technology in non-propellent inhalers and the only one likely to meet the high standards of the important US market. RPR has already had discussions with the British group about acquiring this device, but so have several larger companies with stronger franchises in the asthma market, according to Mr Wallis, and the possibilities do not end there. Cancer treatments form just one new area where the devices could be used to deliver drugs.

The value of these assets, which could form a key bargaining chip for bringing new drugs into the group, gives him confidence that a higher price can be extracted for Fisons.

With Fisons' shares standing well clear of the bid, Mr Wallis has plenty of support in that view. The market is optimistic that either RPR will have to raise its offer or Fisons will be rescued by a white knight, but Mr Wallis is not pinning his hopes on either. He is not letting the bid distract him from the radical course he set out on a year ago. That has already reversed Fisons' image as the sick man of the drugs industry and raised its share price from 105p to 193p even before RPR's arrival on the scene.

In pursuing his strategy, Mr Wallis has sacrificed some sacred cows. A pounds 600m disposal programme has included the sale of most of the research and development capability, but it has restored the group's creaking finances and put it in the position to make acquisitions for the first time in five years.

Mr Wallis faces the tough task of rebuilding the business. "I have always made it very clear that I saw this as the first stage of a much more important development for Fisons. I do not see, and nor does the board see that Fisons, as a half-a-billion pound stand-alone business, has a place in the fast-changing pharmaceutical market."

He admits to "a huge disadvantage" in his lack of knowledge of the sector, but believes his experience at packaging group Bowater (now Rexam) stands him in good stead, given the enormous changes in the packaging industry. He sees the drugs industry eventually polarising between eight and 12 very large international companies, which would include giants Glaxo Wellcome, Merck, SmithKline Beecham, and a number of smaller companies which will not have major r&d spending budgets, but will buy in products. The key at this bottom end of the scale will be sales and marketing operations, or access to them. It is in this smaller category that he sees Fisons, "concentrating in areas the major pharmaceutical companies do not see as of prime importance to themselves because the total market opportunities are too small for them".

The aim is to propel Fisons to the top of these niche markets, commanding a share of 50 per cent or more, where the size does not represent a threat to the major companies. Mr Wallis sees this group's new role as providing an opportunity for the big drugs groups to offload second-line drugs at good prices. For Fisons, such products would have a much greater importance, allowing far greater marketing and manufacturing resources to be devoted to them. Medeva, with whom Fisons had abortive merger discussions earlier in the year, has been most obviously successful at pursuing this strategy in the UK, but Mr Wallis believes there are better examples in the US. There, he says, companies like Forest, Ivax and Roberts have comparable or better drug portfolios to Medeva. "Those are all companies that are similar sizes [to Fisons], but none of them have the sales and marketing distribution that Fisons has, which is worldwide in all the major pharmaceutical markets, nor do they have our manufacturing capabilities."

RPR has attacked Fisons' ability to bring in the drugs from outside necessary to expand the group and some analysts have questioned the lack of progress to date. Mr Wallis promises that deals will come "quite soon". But he won't be panicked "just because the irritant of RPR is out there".

Fisons now has a strategic planning department, headed by John Bailey, a main board director. Whether the department gets a chance to do much will depend on institutional investors' reaction to the bid. So far they are enthusiastic about what he has done.

RPR has left the way open for a higher offer in exchange for a recommendation from the Fisons board. "I know there is a lot of loyalty out there," says Mr Wallis. "If the big offer comes in, I am an absolute realist and so is the team here and indeed we would encourage our shareholders to accept that offer. It is not a final quest to stay independent... I wouldn't have a major problem about walking away from it now, but there's more to be had out of this business and I want our shareholders to understand that."

If Mr Wallis walks away with a bid that puts anywhere close to pounds 2bn into shareholders' pockets, few will begrudge him the pounds 1.4m or so he stands to gain from payoffs and through share options. He claims not to be interested in the money, but with his reputation as a turnaround specialist now established, he looks set to make much more.