Subject: British Drug Firm Thrives as `Scavenger'
Date: Published: 3/12/93 (145 lines)
Source: Wall Street Journal. Copyright Dow Jones & Co. Inc.

    British Drug Firm Thrives as `Scavenger'
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    Medeva Finds New Ways
    To Market Old Medicines
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    By Stephen D. Moore
    Staff Reporter of The Wall Street Journal

    LONDON -- The beginnings of Medeva PLC certainly were romantic
 enough.  In October 1987, with the biotech start-up boom at its
 hottest, the company's founders set out to turn an experimental
 medicine into a treatment for cancer and AIDS.  
    "We lasted 22 months, until August 1989," recalls Ian
 Gowrie-Smith, one of the founders of Medirace PLC, as the start-up
 company was called.  That is when it became clear that a spectacular
 early success wasn't going to materialize.
    So, Mr. Gowrie-Smith and his colleagues made a stunning
 about-face.  The company bought Evans Medical Ltd., a maker of
 vaccines and generic drugs, changed the combined concern's name to
 Medeva, hired a former Glaxo Holdings PLC chief executive officer,
 and turned itself into a scavenger among the drug industry's
 castoffs and leftovers.
    By buying up small drug makers and finding new ways to market
 dozens of aging, usually off-patent medicines, Medeva has become a
 booming success.  On Wednesday, the concern reported its pretax
 profit more than doubled last year to #36 million ($52 million) as
 gross profit margins grew to 56% from 46%.  Sales were up 75% to
 #114.2 million.  Its stock jumped in response on the London exchange.
    With its tradition-flouting strategy, Medeva has joined a handful
 of maverick drug companies, mostly American, that are exploiting --
 and at the same time accelerating -- major changes in the $175
 billion-a-year global drug industry.  The skyrocketing costs of
 research and global marketing have prompted titans such as Merck &
 Co. and Glaxo to focus their resources on developing fewer products,
 but ones with potentially huge payoffs.  They don't have the time,
 the money or the energy to think up new delivery methods or more
 convenient doses for old drugs, or to launch them into new markets.
    Sweeping up such crumbs left by the giants has turned into a
 lucrative strategy not only for Medeva but also for its U. S. models,
 drug makers such as Forest Laboratories Inc., Roberts Pharmaceutical
 Corp. and Ivax Corp. 
    At the same time, industry consolidation has made it easier for
 companies like Medeva to buy drug factories and pharmaceuticals
 marketing units, which once were hard to come by.  This development
 has enabled Bernard Taylor, Medeva's chairman, to forge the company
 into a medium-size, trans-Atlantic drug maker that fits into the
 industry's middle ground.
    "I had always felt that there would be room for quite a
 substantial operation between the great research companies at one
 end of the pharmaceutical industry and the rats and mice-the
 generics boysat the other end," Mr. Taylor says.  At the same time,
 he adds, the biotech start-up route is a long haul, fraught with
 peril; it typically takes 10 or 12 years and loads of money to bring
 a new drug to market.
    Mr. Taylor came to Medeva in February 1990, a few months after
 having been ousted as chief executive of Glaxo in a board room coup.
 He says being recruited by Medeva unleashed an entrepreneurial
 streak he had secretly nurtured for years.  Since he took over,
 Medeva's pretax profit has multiplied eightfold and sales have
 nearly tripled.  His aim is to push Medeva's sales to #500 million a
 year and to make its stock one of London's top 100 in terms of
 market capitalization by the mid 1990s.
    Clearly, getting there poses tough challenges.  To maintain
 growth, Medeva must substitute bigger and better products for its
 present ones.  Mr. Taylor says Medeva will make its biggest push in
 two lucrative but fiercely competitive sectors:  vaccines and
 respiratory drugs.
    And, lacking a huge home market, Medeva must increase its
 cross-border marketing clout.  That's why it swallowed up a pair of
 small U. S. drug companies in 1991 and added two more last year.
 Breaking into Continental Europe has been harder.  "At the moment,
 it's hard to find anything if you're not interested in turnaround
 situations, family feuds or a meager slice of some market that's
 just going to get us buried in a pocket of problems," says Mr. 
 Gowrie-Smith, who is now president of Medeva.
    Still, Mr. Taylor is upbeat about international marketing
 potential.  "Many of our products tend to have been developed or sold
 in one market, but never crossed borders before," he says.
    Late last year, Medeva disclosed a two-step transaction that
 signals its future strategy.  It acquired a U. S. -based manufacturer
 of respiratory drugs and, at the same time, pulled out of the
 cutthroat generics business, selling its inventories of unbranded
 generic products along with an idle British factory to Ivax.
    Deft deal-making has been a key to Medeva's success and could
 become even more crucial during the next few years, when executives
 plan to stalk bigger prey.  Mr. Gowrie-Smith says Medeva expects to
 gobble up faltering start-up firms launched during the biotech boom
 in the U. S. And accelerating industry consolidation across Europe
 will heat up takeover activity.
    "What you've got in Europe are many old family companies that
 discovered drugs and got them registered 10 or 20 years ago when the
 regulatory process wasn't as expensive or as scientifically
 demanding as today," Mr. Gowrie-Smith says.  "They're caught in the
 vortex of wanting to remain a research-based company -- but lacking
 the discovery process or resources to sustain that, or the
 distribution and infrastructure to exploit it.  It leaves them
 hanging between somewhere and nowhere."
    One of Mr. Taylor's main concerns so far has been avoiding
 head-on competition with major pharmaceutical companies.  Indeed,
 after the acquisition of Evans and its licenses for making and
 selling controlled substances, Medeva held a virtual U. K. monopoly
 on narcotic pain killers, which are tightly regulated.  Mr. Taylor
 expanded that niche by acquiring additional controlled products from
 SmithKline Beecham PLC. 
    Medeva's British experience with controlled substances helped in
 its 1991 acquisition of MD Pharmaceutical in the U. S., whose biggest
 product is a restricted drug used to treat hyperactivity in
 children.  Medeva ordered a market survey that found substantial
 unsatisfied demand for methylphenidate, the anti-hyperactivity
 medicine.  The data persuaded U. S. drug authorities to authorize an
 increase in production quotas for the first time in years.  As a
 result, during last year's first half Medeva posted a 30% surge in
 prescriptions and a doubling of methylphenidate sales to 11.8
 million from the previous year.
    In Mr. Taylor's blueprint, though, controlled substances will be
 at best a sideline.  Now he aims to push into bigger therapeutic
 sectors such as vaccines and respiratory drugs, even though that
 will open Medeva to competition from the giants, which Mr. Taylor so
 far has avoided.  Medeva inherited the nucleus of its vaccines
 business through the Evans purchase.  Later it acquired Wellcome
 PLC's unwanted vaccines unit, making itself No. 5 world-wide in
 vaccines.  Mr. Taylor does acknowledge, though, that "there's a big
 gap between us and No. 4."
    In the past couple of years, companies such as Merck and
 SmithKline have come out with novel genetically engineered vaccines
 against hepatitis and other diseases.  Mr. Taylor acknowledges that
 competition in vaccines has "gotten tougher since we first started."
 But he adds that "the point about vaccines is that it's difficult to
 get patents on them, so the majors can't control that business the
 way they do ulcer or cardiovascular medicines."
    Medeva has accelerated development of oral vaccines on which the
 former Wellcome unit did pioneering work.  Mr. Taylor believes Medeva
 leads the race to develop oral vaccines offering immunity after a
 single dose, rather than the current system requiring three doses
 spread over several days.  That convenience, he suggests, promises to
 be a big selling point.

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