International -- European Business: GERMANY
JURGEN DORMANN: HOECHST IS BACK ON TRACK (extended) (int'l edition)
No mergers, thank you--it's still digesting Marion and Roussel
Six months ago, Hoechst CEO Jurgen Dormann was on the defensive. His moves to transform the $29 billion German drug and chemical giant into a "life-sciences" company focused on pharmaceuticals and biotechnology had investors baffled. In particular, a reversal of plans to spin off drug unit Hoechst Marion Roussel sent Hoechst's share price plummeting. Now, Dormann insists, the company's restructuring is on track. Operating profits for fiscal 1997 rose 22%, to $2.3 billion, excluding special items. At company headquarters in the eponymous town of Hoechst, Dormann discussed his strategy with Frankfurt Bureau Chief Thane Peterson and Senior News Editor Joan Warner.
Note: This is an extended, online-only version of the Q&A that appears in the March 16, 1998, issue Business Week.Q: All eyes are on Glaxo Wellcome and SmithKline Beecham. Would more merger mania push you to seek a partner for Hoechst Marion Roussel?
A: We constantly have to watch what's going on in the market. But in the next two to three years, I do not see a need.Q: Even if more big European drug mergers occur?
A: Yes. Why? Let's not forget what we have done. It's only two or three years ago we acquired Marion. We took over the rest of [French pharmaceutial giant] Roussel Uclaf last year. We're still setting up the new structure. And we're very busy getting prepared for the new products coming to market.Q: Do you dispute the logic of drug companies trying to get bigger and bigger?
A: No, I don't. It's not the right time for us. Let's not forget, from a revenue point of view, we are bigger than SmithKline, bigger than Roche. We have to improve our pipeline, and that's what we're doing.Q: What's in your pipeline?
A: There are nine new products in different phases of clinical [trials], getting pretty close to market.Q: Skeptics fear you won't have enough money for research and development.
A: There's absolutely no reason to question that. Look at the consequences of restructuring. We are shifting from chemicals and plastics and fibers -- areas where you need a lot of money to invest in capacity -- into knowledge-based businesses. In pharmaceuticals today, we spend 17% of turnover on R&D. You'll find few companies matching that.Q: After last week's earnings report, do you think you have the confidence of institutional investors?
A: We had double-digit growth in operating results. There are some issues in the pharmaceuticals business, and we are going to address those issues. [Hoechst Marion Roussel CEO Richard] Markham and his team have announced a final round of restructuring that will take $255 million in costs out of HMR, mostly in 1998. This will bring organic top-line growth.Q: Does that mean you'll make layoffs?
A: Not necessarily. We aim to bring the [HMR] people into new jobs in other areas. That's why I was able to announce there will be no layoffs in the Frankfurt area. Perhaps in the U.S., perhaps elsewhere in Germany. But any layoffs will be based on the company's philosophy of awarding fair [termination] packages.Q: What do you make of Gerhard Schroder as the Social Democratic candidate in September's election? Is Chancellor Helmut Kohl in trouble?
A: Don't underestimate Kohl's fighting spirit. It will be a narrow race, no doubt.Q: Do you think there is a chance of a grand coalition between the two major parties, and do you favor it?
A: You can't exclude it. But I'm not favoring a grand coalition -- only if we have no other choice and only for a very short time.Q: Will the crisis in Asia have an impact on your business?
A: It doesn't mean very much for our life science activities. It will have some negative impact on our chemical and petrochemical activities, because there will be some pressure on margins. Q: Do you think the Japanese or other Asians will be set back in efforts to grow stronger in the drug business?
A: There are only a few Japanese [drug] companies, because of the high entry barrier. This is a knowledge-based biz. And Hoechst has a very strong international franchise. We are strong in Latin America, in Japan, in Europe, and after Marion, also in the U.S. The Anglo-Saxon companies are much more focused on the big U.S. market. We, probably together with Novartis, have the strongest international marketing organization. And outside Japan, let's face it, the Japanese have no marketing strength. Q: Are you sanguine about European monetary union?
A: It's a good move, and we should start the [common currency] as soon as possible. It will have consequences most people aren't yet aware of -- common economic, fiscal, social policy. The euro will be a catalyst in bringing [national] policies closer together. I'm very much in favor of it.Q: Will Hoechst ever wind up purely a drug company?
A: No, we're a life sciences company. When you talk about genome analysis, whether it's humans or plants or animals, the problem of how we can influence [genetics] has a common basis. But it's easy to admit that if you're focused on drugs only, you will be successful if you have the right products.Q: Do you think there will be 10 big drugmakers left in five years?
A: Yes, plus a lot of small biotech-based companies. How about the in-betweens? That's the issue.