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What A Difference A Merger Makes


The Corporation

WHAT A DIFFERENCE A MERGER MAKES

Robert E. Cawthorn was thrilled in 1990, when the French chemical titan Rhone-Poulenc bought his pharmaceutical company, Rorer Group Inc. At the time, Rorer was something of an also-ran. It fielded no major drugs and was best known for its aging over-the-counter antacid, Maalox. Cawthorn, who had been Rorer's chief executive for five years, was betting that the merger could enliven the sleepy suburban Philadelphia company.

Two years later, the merger has accomplished that and then some. Caw-thorn, now CEO of the rechristened Rhone-Poulenc Rorer Inc., heads one of the best-performing drugmakers in the U.S. Net profits are expected to rise by 28% this year, to $418 million, with sales expected to hit $4.2 billion, up 9.5% from 1991, according to Goldman, Sachs & Co. Looking ahead, many analysts expect RPR's profits to rise by over 20% a year through 1996.

To ensure continued growth in the latter part of the decade, Cawthorn has tapped his parent company's vast coffers, pouring some $500 million into drug research and development this year alone. That's a far cry from the $18 million Rorer Group spent in 1985, three years after Cawthorn joined the company. The goal: to produce a new generation of drugs that could propel RPR into the big leagues with pharmaceutical giants such as Merck & Co. (table). The British-born Cawthorn, 57, now says that RPR will be "the world's best drug company" by the year 2000.

That may sound boastful, but Cawthorn can be forgiven some enthusiasm. By combining Rhone-Poulenc's pharmaceutical division with Rorer's, RPR now has a truly global business, with only about 22% of its sales coming from the U.S. And the consolidation has produced some cost savings. Selling off five European plants helped reduce the company's payroll by 4%, to 22,500 employees.

Of course, the merger with Rhone-Poulenc, which now owns 68% of RPR's stock, hasn't been totally seamless. To accommodate his new partners, Cawthorn named two presidents -- one French and one American -- and split worldwide responsibilities between them. Still, some tensions exist. Jean-Jacques Bertrand, the French president, complains that Americans set lofty goals and then sometimes fall short. For his part, Ralph H. "Randy" Thurman, who heads U.S. operations, says he has had to learn to accept the Gallic penchant for time-consuming analysis.

But bridging the cultural gaps is nothing compared to the task of turning out enough novel medicines to maintain RPR's growth. RPR still doesn't have any megadrugs to drive sales in the future. Maalox, with annual sales of $245 million, remains the company's top seller. Cawthorn is betting on some important research breakthroughs to expand his product line. He has told his researchers to focus on such niche markets as respiratory diseases, aids, and central-nervous-system disorders, including Alzheimer's. He has also bolstered RPR's R&D efforts by signing on some impressive talent. For instance, to develop an aids vaccine, his scientists are working with California-based Immune Response Corp. and its adviser, Dr. Jonas Salk, discoverer of the polio vaccine.

SLOW START. But while analysts are impressed with Cawthorn's bold plans, many still question whether RPR can produce the winners it needs. Many of RPR's potential big sellers face stiff competition. Consider RPR's forthcoming Taxotere. Analysts say the drug, which was first developed by Rhone-Poulenc in the mid-1980s to treat ovarian cancer, is RPR's most promising new product. But it still faces a couple of more years of tests before it can hope to receive approval either in France or from the Food & Drug Administration. Meantime, Bristol-Myers Squibb Co. is expected to launch a rival drug, Taxol, within months. On Nov. 16, an fda advisory panel recommended approval of Taxol.

Still, Cawthorn is racing ahead with his strategy to transform RPR, which now ranks 14th in sales, into one of the world's top five pharmaceutical purveyors. "I've never been one to be too worried about taking on a new challenge," he says. Cawthorn will need that kind of nerve -- and some new wonder drugs -- to keep up RPR's momentum and prevent his company from ever again being labeled an "also-ran."Joseph Weber in Collegeville, Pa., with Charles Hoots in Courbevoie, France


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