Ousted as chief executive of Glaxo in a "reshuffle", Bernard Taylor is relishing every displaced man's dream as chairman of a small but fast-growing rival with big plans. Matthew Lynn reports.
The first weekend of May 1989 was a bad two days for Bernard Taylor; two days which would cost him his job and his career. He was unaware of it at the time. The action was taking place in Venice, and though it concerned Taylor, he was not a part of it. Nor did he have any suspicion that anything was wrong.
His career at Glaxo, Britain's largest pharmaceuticals company, had been successful. He had begun in the marketing department in the early 1960s, and had risen to become chief executive in 1986. That May weekend was to turn his life upside down. After it, he would be just another former career man, possibly more than slightly shocked, hawking himself around, and looking for something to do.
Taylor's absence of any suspicion was understandable, for on the surface there were no grounds for it. By any standard measure his three years at the helm had been a tremendous success. When he became chief executive, Glaxo was already on a long upswing, propelled forward by the success of its best-selling ulcer cure Zantac. But Taylor had figures to be proud of: during his reign the company's sales had moved from £1.1 billion to £2.5 billion, and profits had risen from £403 million to £1 billion.
All of this would make that meeting in a Venice hotel more incomprehensible to him. There Sir Paul Girolami, the Glaxo chairman and a man who was still intimately involved in the day-to-day running of the company, was meeting up with the head of its American operations, Dr Ernest Mario. The location was not at all unusual, for Venice is the city where Girolami was born and it is one of his favourite places. But the purpose of the meeting was out of the ordinary. Girolami was there to offer Mario a new job: Taylor's.
The news broke several days later on May 10. A Glaxo statement announced that Mario would take over from Taylor as chief executive in what was played down as a simple "management reshuffle". It did not seem that way to Taylor; to him it was not so much a shuffle as a fall. That day he packed his briefcase and walked out of Glaxo's Clarges Street head office for the last time. He had resigned without notice.
To outsiders it was a surprise. There had been no whispers or rumours of discord among the top officials of the company. But to insiders, the execution was simply the culmination of a steady erosion of Taylor's position within the business that had been going on for more than a year.
"It was very clever," says one board member who was around at that time. "Girolami didn't do it all of a sudden, but he took his power away piece by piece. He chopped him up like a salami." Another insider from those troubled times recalls: "Poor Bernard. I think he was the last to know."
Salamied out of a job, Taylor suddenly found himself without a role. The circumstances of his departure from Glaxo are still a sensitive subject, and one which he politely declines to talk about. But he had a severance contract from the company which prevented him from joining another of the major drugs companies, an option which he might otherwise have pursued. That left him very much at a loose end.
In a distant part of the woods at this time there was a small company which was also at a very loose end. It was called Medirace, and it had a listing on the Third Market, but nobody was very sure what it was all about.
Medirace had been set up by an entrepreneurial Australian called Ian Gowrie-Smith. While working as an investment consultant, Gowrie-Smith had been approached in early 1987 by a group of scientists at Hammersmith Hospital's postgraduate medical school. They were working on the development of a novel drug called Contracan for use with cancer patients, but they needed cash to fund their programme. Gowrie-Smith opted for the highest profile money-raising route available: a listing on the stock market.
The listing went ahead, and it worked for a while, but two years later the company was drifting. Money had been pumped into the research but success was still a long way off. As soon as the news broke of Taylor's departure, Gowrie-Smith contacted him about climbing aboard. Well, no, not really, was Taylor's response; the company, in his view, was still too small. But Gowrie-Smith had a deal up his sleeve, a deal which was to transform Medirace, and which would also transform Taylor's view of the business.
That deal was Evans Medical. Evans was an old established drugs business (its history dated back to 1809), and, ironically, had been a part of Glaxo until Taylor himself had sold it to its present management in 1985. Now the company was about to complete a neat, though long and winding, circle.
Evans was a producer of generic drugs, cheap copies of medicines that had gone off patent. It had a well established share of the UK market - close on 20% - but generics are a cut-throat business in which price is the only factor in whether you make a sale or not.
Out on its own, the business was having a rough ride, and it was looking for a buyer. Gowrie-Smith, meanwhile, was looking for something that would give his company some solid cash flow. He and the Evans team found each other; and Gowrie-Smith, miraculously, also found the £87 million asking price for the business. The deal went ahead. It was to have a greater significance than simply providing cash flow, however. With Evans on board, Taylor's interest was hooked.
Here was something that gave him an opportunity to use his energy, something that he could play some serious sport with. And so, in January 1990, the twisted strands of the story finally wound themselves together. In that month Evans became part of Medirace, and Bernard Taylor became chairman of the company. As if to mark its metamorphosis, the company's name was changed to Medeva. And from here on everything would be very different, not least for Bernard Taylor. He was back in the drugs business.
"I had for many years had an ambition to start a pharmaceutical company," he recalls now of his decision. "And I was offered some very attractive options which meant that for the first time I could see some direct relationship between what I was doing and how I was being rewarded."
Attractive options were as attractive to Medeva as they were to Taylor. For a fledgeling company he was quite a catch. To understand why is to understand something about the pharmaceuticals industry. Although the product end of the business is about as precise a science as the commercial world involves itself in, the business side is more of an art. Since few people without white coats and doctorates in biochemistry can figure out the science, the money tends to follow the man. And Taylor was recognised as a man to follow.
At Glaxo, he rather than Girolami, who is a retiring soul, had been the front man for the business. He was the man whom the fund managers and the bankers knew and respected; and Glaxo, one of the best performing companies of the 1980s, had been one of their pet stocks all through the decade. Taylor was not short of either a reputation or fans. "People were attracted by Bernard Taylor," says Christopher Fisher, an adviser to Medeva at the merchant bank Lazards. "He brought a whole new credibility to the situation. He was the vital ingredient."
Trading on the reputation of its new chairman, Medeva, up until then looked down upon rather sniffily by investors, suddenly found itself the subject of great expectations. Now popular, it could raise cash to embark on a series of expansive acquisitions - which had, anyway, been Taylor's plan all along.
"In my previous career I had started to see smaller products neglected by the pharmaceutical industry," says Taylor. "There has been a trend towards gigantism. And for as long as 10 or 15 years I had thought that provided an opening, an opportunity for someone to put something together out of smaller products and be very successful indeed."
Moving into his new job, Taylor speedily stitched together a three-part strategy for his new baby. Part one was to concentrate on the smaller bits of the market. Running Glaxo, he had realised that as the company grew, it was no longer feasible for it to manufacture and promote drugs with worldwide sales of much less than £100 million a year; the revenue would not support its overheads.
The same logic applied to his rivals - to Merck or SmithKline Beecham or Bristol-Myers Squibb and so on. That, however, still left a lot of empty space for niche medicines for less common diseases. Part two was to internationalise the business, by taking it into the 10 major markets around the world, excluding Japan, which he considered too difficult and expensive a country to break into for a company with Medeva's limited resources. Those 10 markets were calculated to bring the business to three quarters of the $180 billion world market, but without the expense of creating a global company. And part three of the strategy was for Medeva to start developing its own products.
Work on Contracan had, ironically, stopped late in 1990, as the scientists realised that the development had reached a dead-end. But Taylor was still keen to develop original science, not by working from scratch but by buying into products that were already well advanced along the development chain, and only three to five years away from the market. In essence, the strategy was all about building a major company on the cheap.
In his first 18 months at the helm Taylor has embarked on a whirlwind programme of acquisitions. Medeva purchased a Manchester-based company called Thomas Kerfoot, another manufacturer of generic medicines, for £10 million plus an earn-out which could add another £10 million to the price. It acquired Wellcome's vaccine business for £20 million, to bolt on to Evans's existing vaccine business. It bought a range of products from SmithKline Beecham for an undisclosed sum. And it has expanded abroad by setting up a 60:40 joint venture with Instituto Llorente in Spain; and with the acquisition of California-based MD Pharmaceutical for £56.7 million earlier this year.
These acquisitions have transformed the company. In 1989 it reported results which were simply bizarre: a pre-tax loss of £2.6 million on turnover of £886,000. In 1990 it reported a profit of £5 million on sales of £52.6 million; and stockbroker Bell Lawrie White predicts profits this year of £14 million on sales of £94.2 million, rising to profits of £41.9 million on sales of £165 million by 1994.
But more significant than the financial turnaround was the fact that Medeva, from being no more than a contender, was now a major player in two markets. The combination of Evans and Kerfoot, merged into Evans-Kerfoot, is now the leading producer of generics in the UK, and the two firms have been rationalised, with the result that the company is now expected to make profits rather than veering between losses and break-even. And the combination of Wellcome's and Evans's vaccine units makes it one of only two companies worldwide with a significant concentration in the vaccine market (the other is Rhone Poulenc of France). That division is now expected to make significant profits, even though Wellcome was doubtful of finding a buyer and was considering shutting it down.
One measure of Medeva's transformation is its market share: it now has 2.7% of the UK market, well behind that of Taylor's old firm (which has more than 10%) but more than respectable for a business less than two years out of the starting blocks. Another is share price: the company is now valued at close on £300 million, and its price/earnings ratio is around 50, higher than that of any other company in the sector, including its star performers Glaxo and Wellcome.
Among analysts the company has an enthusiastic following. "Taylor has this fantastic range of contacts," says one fan, Dominic Wilson, of broker Henry Cooke Lumsden. "He can open doors that other people didn't even know existed."
This is indeed a talent. The man himself fizzes with enthusiasm for the venture. He talks of creating a company with sales of £500 million over the decade; he talks of more acquisitions in the United States; of acquisitions across Europe; of new products; and so on. "It's going to be a period of great activity," he says with obvious enjoyment. "There are going to be acquisitions, there is going to be growth - in sales, in profits and in earnings per share. It's not impossible."
A pipe-dream? "He has built up confidence as the story has unfolded because he has delivered everything he promised to deliver," says Lazards' Fisher. So far, then, so good. But his continuing success depends on convincing his supporters that Medeva can be turned into the Glaxo of the '90s.
Conflicting views from the past are not, unsurprisingly perhaps, unanimously optimistic. To one former Glaxo executive, Taylor was a "lazy manager" whom Girolami was right to axe. To another, he was the man whose marketing wizardry turned Zantac into the biggest product the industry had ever seen. To both views, Medeva seems as much a reply as an ambition; an act of confirmation for Taylor's followers; and for his critics an act of vengeance for those events in Venice more than two years ago.
The latter thought provokes a deep furrow to appear on Taylor's elongated, dome-shaped forehead. "It's not consciously revenge," he says after some thought. "I've always been stirred by internal motives." Perhaps. But the company is nonetheless an opportunity to, if not get back at Glaxo, at least get even.
(Matthew Lynn is a freelance writer.)