RHONE POULENC RORER INC, 10-Q, 1997-11-13

RHONE POULENC RORER INC
10-Q, 1997-11-13
PHARMACEUTICAL PREPARATIONS

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___________________________________________________________________
___________________________________________________________________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-5851

RHONE-POULENC RORER INC.
- -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

COMMONWEALTH OF PENNSYLVANIA 23-1699163
- -------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

500 ARCOLA ROAD
COLLEGEVILLE, PENNSYLVANIA 19426-0107
- -------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)

(610) 454-8000
- --------------------------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

The number of shares of Rhone-Poulenc Rorer Inc. common stock
outstanding as of the close of business October 31, 1997 was
138,183,626.
__________________________________________________________________
- ------------------------------------------------------------------
The Exhibit Index is located on page 27.

RHONE-POULENC RORER INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 1997

TABLE OF CONTENTS
_______________________________

PART I. FINANCIAL INFORMATION

Page
Item 1. Financial statements:

Report of Independent Accountants 3

Condensed Consolidated Statements of Income 4

Condensed Consolidated Balance Sheets 5

Condensed Consolidated Statements of Cash Flows 6

Notes to Condensed Consolidated Financial Statements 7-13

Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 14-20

PART II. OTHER INFORMATION

Item 3. Legal Proceedings 22-26

Item 6. Exhibits 27

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of Rhone-Poulenc Rorer Inc.:

We have reviewed the accompanying condensed consolidated balance
sheet of Rhone-Poulenc Rorer Inc. and subsidiaries as of
September 30, 1997, and the related condensed consolidated
statements of income and cash flows for the three- and nine-
month periods ended September 30, 1997 and 1996. These
financial statements are the responsibility of the Company's
management.

We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not
express such an opinion.

Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet of
Rhone-Poulenc Rorer Inc. and subsidiaries as of December 31,
1996, and the related consolidated statements of income and cash
flows for the year then ended (not presented herein); and in our
report dated January 22, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1996, is fairly
stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

/s/ COOPERS & LYBRAND L.L.P.
----------------------------------
Coopers & Lybrand L.L.P.

Philadelphia, Pennsylvania
October 17, 1997

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RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - amounts in millions except per share data)

Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
--------- -------- -------- --------
Net sales $1,168.9 $1,278.0 $3,492.7 $3,896.5

Cost of products sold 317.0 370.6 1,008.4 1,248.6

Selling, delivery and
administrative expenses 492.1 506.0 1,438.3 1,552.7

Research and development expenses 194.3 207.2 599.5 621.5
-------- ------- -------- -------
Operating income 165.5 194.2 446.5 473.7

Interest expense, net 41.0 44.6 117.2 129.1

Other (income) expense, net 8.8 (8.5) (12.0) (85.9)
-------- ------- -------- -------
Income before income taxes 115.7 158.1 341.3 430.5

Provision for income taxes 36.1 48.8 106.2 134.0
-------- ------- -------- -------
Net income 79.6 109.3 235.1 296.5

Dividends on preferred stock and
remuneration on capital equity
notes 10.8 11.9 32.7 33.2
-------- ------- -------- -------
Net income available to common
shareholders $ 68.8 $97.4 $202.4 $263.3
======== ======= ======== =======
Primary earnings per common share $ .50 $ .72 $ 1.48 $ 1.94
======== ======= ======== =======
Cash dividends per common share $ .32 $ .32 $ .96 $ .94
======== ======= ======== =======
Average common shares outstanding 137.5 136.2 137.1 135.6
======== ======= ======== =======

See Notes to Condensed Consolidated Financial Statements.

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RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in millions)

September 30, December 31,
1997 1996
---------- ----------
ASSETS
Current:
Cash and cash equivalents $ 104.5 $ 100.6
Cash pooling arrangements with
Rhone-Poulenc S.A. 3.4 3.2
Short-term investments and notes receivable 71.1 38.7
Trade accounts receivable, less reserves of
$100.2 (1996: $111.3) 832.2 984.1
Inventories 785.9 800.7
Other current assets 706.3 846.2
--------- --------
Total current assets 2,503.4 2,773.5

Time deposits, at cost 103.3 128.4
Property, plant and equipment, net of
accumulated depreciation of $1,430.8
(1996: $1,461.1) 1,417.2 1,525.9
Goodwill, net of accumulated amortization of
$334.7 (1996: $294.9) 2,533.7 2,739.0
Intangibles, net of accumulated amortization
of $270.4 (1996: $231.4) 682.5 766.7
Other assets 822.0 834.6
--------- ---------
Total assets $8,062.1 $8,768.1
========= =========
LIABILITIES
Current:
Short-term debt $ 172.1 $ 119.9
Notes payable to Rhone-Poulenc S.A. &
affiliates 123.5 6.8
Accounts payable 420.0 594.7
Other current liabilities 1,065.1 1,331.5
--------- ---------
Total current liabilities 1,780.7 2,052.9

Long-term debt 2,478.8 2,272.0
Notes payable to Rhone-Poulenc S.A. &
affiliates 22.7 253.0
Deferred income taxes 225.5 218.0
Other liabilities, including minority
interests 1,116.4 1,322.4
--------- ---------
Total liabilities 5,624.1 6,118.3

Contingencies

SHAREHOLDERS' EQUITY
Money market preferred stock, without par
value (liquidation preference
$100,000 per share); authorized, issued and
outstanding 1,000 shares (1996: 1,750) 100.0 175.0
Capital equity notes 500.0 500.0
Common stock, without par value; stated value
$1 per share; authorized 600,000,000 shares;
issued and outstanding 137,653,069 shares
(1996: 136,615,917 shares) 142.8 141.6
Capital in excess of stated value 283.9 234.8
Retained earnings 1,908.6 1,837.9
Employee Benefits Trust (198.1) (185.7)
Cumulative translation adjustments (299.2) (53.8)
--------- ---------
Total shareholders' equity 2,438.0 2,649.8
--------- ---------
Total liabilities and
shareholders' equity $8,062.1 $8,768.1
========= =========

See Notes to Condensed Consolidated Financial Statements.

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RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - dollars in millions)

Nine Months Ended
September 30,
--------- --------
1997 1996
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 78.2 $ 443.9

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (183.9) (221.0)
Assets sold, net 23.0 375.4
Purchases of investments/product rights (56.2) (107.2)
Sales of investments/product rights 77.9 109.2
Businesses acquired 1.4 (30.1)
Net investment hedging, net 16.5 (4.1)
-------- --------
Net cash provided by (used in) investing
activities (121.3) 122.2

CASH FLOWS FROM FINANCING ACTIVITIES:
Debt borrowings (repayments):
Short-term debt, net 167.5 (334.3)
Long-term debt, net 79.8 (179.9)
Dividends and remuneration paid (155.2) (151.5)
Issuances of common stock 50.1 66.6
Redemption of money market preferred stock (75.0) --
Repurchases of common stock for the Employee
Benefits Trust (12.5) --
--------- --------
Net cash provided by (used in) financing
activities 54.7 (599.1)

Effect of exchange rate changes on cash and
cash equivalents (7.7) (5.9)
--------- ---------
Net increase (decrease) in cash and cash
equivalents 3.9 (38.9)
Cash and cash equivalents at beginning of
period 100.6 115.4
--------- ---------
Cash and cash equivalents at end of period $ 104.5 $ 76.5
========= =========

See Notes to Condensed Consolidated Financial Statements.

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RHONE-POULENC RORER INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.- RESULTS FOR INTERIM PERIODS

In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect the
adjustments, all of which are of a normal recurring nature,
necessary for a fair presentation of financial position, cash
flows and results of operations for the periods presented.
Certain prior year items have been reclassified to conform to
current classifications.

The consolidated financial statements of Rhone-Poulenc Rorer
Inc. (the "Company") are prepared on a basis in conformity with
U.S. generally accepted accounting principles ("U.S. GAAP").
The preparation of the financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the dates of the
financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could
differ from those estimates. See Note 10 for disclosure of
contingent liabilities and related matters.

The statements are presented in accordance with the requirements
of Form 10-Q and do not include all disclosures required by
generally accepted accounting principles or those made in the
Annual Report on Form 10-K. The Annual Report on Form 10-K for
the year 1996 is on file with the Securities and Exchange
Commission and should be read in conjunction with these
condensed consolidated financial statements.

In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share," effective for periods ending after
December 15, 1997. The Statement simplifies earnings per share
calculations and requires presentation of both basic and diluted
earnings per share on the face of the statement of income.
Adoption of SFAS No. 128 will not have a material impact on the
Company's earnings per share calculations.

NOTE 2.- ACCOUNTING POLICIES FOR DERIVATIVE FINANCIAL
INSTRUMENTS

Foreign Currency Exchange Contracts

Foreign Currency Transactions
The Company enters into foreign currency exchange contracts to
minimize exposure of foreign currency transactions (such as
export sales, raw materials purchases, and short-term
intercompany financings) and firm commitments to fluctuating
exchange rates. The Company's foreign currency transaction
hedges are executed centrally to minimize transaction costs and
to monitor consolidated net exposures in all currencies and the
effectiveness of the hedging relationships. Contracts hedging
foreign currency transactions are marked to market at each
balance sheet date under the fair value method; the resulting
gains or losses are recognized in other (income), net,
offsetting the corresponding losses or gains on the transactions
being hedged. Cash flows associated with these foreign currency
exchange contracts are classified in the same category as the
hedged transactions.

The Company may also seek to minimize exposure of its non-U.S.-
based forecasted quarterly pretax earnings to foreign currency
fluctuations by utilizing foreign currency exchange contracts.
These contracts are marked to market in other (income), net at
each balance sheet date. Related cash flows are classified as
cash flows from operating activities.

Net Investment Hedges
The Company may utilize foreign currency exchange contracts and
foreign currency-denominated borrowings to limit the exposure of
its net investments in foreign subsidiaries to currency
fluctuations and thereby limit the volatility of reported

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equity. These arrangements are designated as hedges of the
Company's net foreign investments. Both realized and unrealized
gains and losses on these arrangements which offset the gains
and losses on the related net investments are recorded as
cumulative translation adjustments ("CTA") in shareholders'
equity. Cash flows associated with the hedging instruments are
classified as cash flows from investing activities. If a
foreign currency-denominated borrowing or foreign currency
exchange contract that qualifies as a hedge of a net investment
is terminated, any gains or losses previously recorded in CTA
remain in CTA. These gains or losses would be recognized upon
liquidation or sale of all or substantially all of the net
foreign investment.

The net receivables (payables) related to the Company's foreign
currency exchange contracts are included in other current assets
(liabilities).

Interest Rate Swap Contracts
The Company may enter into interest rate swap contracts to
manage its exposures to movements in interest rates and to
minimize its overall cost of borrowings. The net receivables
(payables) under interest rate swap contracts are recorded in
other current assets (liabilities) and recognized as adjustments
to interest expense. Cash flows related to interest rate swap
contracts are included in cash flows from operating activities.

If an interest rate swap contract that hedges underlying debt on
the balance sheet is terminated, the gain or loss on the
contract is deferred and amortized into income as an adjustment
to interest expense over the shorter of the remaining life of
the terminated swap contract or the remaining time to maturity
of the hedged debt. If an interest rate swap contract remains
outstanding after termination of the hedging relationship,
changes in the market value of the contract are recognized
currently in income.

NOTE 3.- LICENSING AGREEMENT

In June 1997, the Company licensed to Watson Laboratories, Inc.
("Watson") exclusive worldwide (except for New Zealand and
Korea) distribution rights for Dilacor XR(r) and its generic
equivalents for a period of four and one-half years after which
time Watson has the option to purchase the product rights. Over
the licensing period, RPR expects to receive from Watson annual
licensing fees approximating $135.0 million and royalties on
future sales of diltiazem products. In connection with the
transaction, the Company transferred remaining related inventory
to Watson in the second quarter for a value approximating its
normal wholesaler selling price. The Company also recorded a
pretax gain of $16.0 million in the second quarter on the
termination of a generics diltiazem-related partnership with
Watson. In July 1997, the Company received a $55 million cash
payment from Watson representing the prepayment of both the
second half of 1997 licensing fees/royalties and the purchase
option, which is refundable if not exercised by Watson.

NOTE 4.- OTHER (INCOME) EXPENSE, NET

Centeon
Losses from equity affiliates, principally the Company's
interest in the Centeon joint venture, totaled $9.6 million in
the third quarter of 1997 and $29.4 million on a year-to-date
basis as compared with a loss of $.2 million and income of $77.5
million for the comparable prior year periods. Centeon's 1997
results were adversely affected by the temporary suspension of
production and distribution at its U.S. facility related to an
October 1996 voluntary worldwide recall of Albuminar(r)/Plasma-
Plex(r) products and a January 1997 consent decree with the U.S.
Food and Drug Administration ("FDA"). The negative contribution
from Centeon for the first nine months of 1997 was also impacted
by $31.0 million of pretax recall-related and manufacturing
start-up costs, including costs related to work-in-process and
idle capacity issues and costs associated with compliance with
the consent decree.

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schedule, newly-manufactured plasma-based products were sent to
the FDA for lot release in June and distribution of new
production has begun on a limited basis. Centeon expects
product distribution to increase gradually over the remainder of
the year, with the exception of a temporary interruption of
production scheduled for late fourth quarter 1997 in order to
implement additional facility enhancements.

Centeon sales for the third quarter of 1997, including sales to
certain RPR affiliates, totaled $184.0 million (1996: $200.0
million). Gross margin approximated 30% of sales (1996: 33%).
Losses before the effect of income taxes totaled $12.4 million
compared to $2.0 million in 1996. On a year-to-date basis,
sales totaled $532.0 million (1996: $697.0 million). Gross
margin approximated 31% (1996: 47%) and losses before the effect
of income taxes totaled $28.9 million (1996: IBT of $140.0)

Other Items
Other expense for the third quarter of 1997 includes
approximately $6 million of fees incurred by the Company
pursuant to RP's tender offer to acquire the remaining shares
not previously owned by RP.

Other (income) expense, net included a pretax gain of $16.0
million on the termination of a partnership arrangement with
Watson.

Other (income) expense, net also included net gains totaling
$5.9 million and $20.3 million for the three-and nine-month
periods, respectively, on foreign currency exchange contracts
used to hedge a portion of the Company's non-U.S.-based
forecasted quarterly pretax earnings. Similar gains totaled
$3.2 and $7.9 million for the comparable prior year periods,
respectively.

NOTE 5.- INCOME TAXES

The Company records income tax expense based on an estimated
full year effective income tax rate. The year-to-date September
30, 1997 and 1996 reported effective income tax rates approximated
31.1%.

In July 1997, the French government proposed legislation to
increase the corporate income tax on both ordinary income and
capital gains. The legislation has been enacted in October 1997
with retroactive effect to January 1, 1997. The Company is in
the process of quantifying the impact such changes would have on
its worldwide effective income tax rate, but estimates that the
legislation has the potential to increase the Company's
effective income tax rate by up to one and one-half percentage
points.

NOTE 6.- INVENTORIES

Inventories consisted of the following:

September 30, December 31,
1997 1996
------------- -------------
(Dollars in millions)
Finished goods $361.2 $376.9
Work in process 131.4 159.8
Raw materials and supplies 293.3 264.0
------------- --------------
$785.9 $800.7
============= ==============

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NOTE 7.- SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Money
market Capital Common Capital Employee Cumulative
preferred equity stock at in excess Retained Benefits translation
stock notes stated of stated earnings Trust adjustment
value value
------- ------- ------- --------- ------- -------- -----------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $175.0 $500.0 $141.6 $234.8 $1,837.9 $(185.7) $(53.8)
Net income 235.1
Cash dividends, $.96 per
common share (131.7)
Dividends on preferred
stock (6.3)
Remuneration on capital
equity notes (26.4)
Repurchase of shares for
Employee Benefits Trust (12.4)
Issuance of shares under
employee benefit plans 1.2 49.1
Redemption of FMMP stock (75.0)
Translation adjustments (245.4)
------ ------ ------ ------ ------- ------ ------
Balance, September 30,
1997 $100.0 $500.0 $142.8 $283.9 $1,908.6 $(198.1) $(299.2)
====== ======= ======= ====== ======= ====== =======
</TABLE>

In 1997, the Company's Board of Directors approved the open market repurchase
from time to time of up to five million of the Company's common shares. In the
second quarter of 1997, the Company repurchased approximately 168,000 of its
common shares at a cost totaling $12.4 million. These shares are held in an
Employee Benefits Trust to fund future employee benefits in the United States.

In August 1997, the Company redeemed the outstanding 750 shares of Series 1
money market preferred stock for $75.0 million plus accrued dividends.

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NOTE 8.- RESTRUCTURING

In December 1995, the Company established a combined $160.0
million reserve related to the restructuring of Fisons and
RPR operations as a direct result of the acquisition of
Fisons. The liability represented expected cash outlays,
primarily severance-related, associated with eliminating
approximately 1,900 positions principally in the marketing,
administrative and manufacturing functions. At September
30, 1997, the remaining 1995 restructuring reserve of $23.7
million represented outstanding social costs. For the three-
and nine-month periods ended September 30, 1997, cash
outlays associated with the 1995 restructuring program
totaled $4.3 million and $14.7 million, respectively (1996:
$17.6 million and $94.4 million, respectively).

NOTE 9.- MERGER WITH RHONE-POULENC S.A.

In June 1997, RP announced that it was studying increasing
its ownership of RPR from approximately 68% to 100%. RP was
restricted from commencing such an offer until after the
expiration on July 31, 1997 of the standstill period under
the Rorer acquisition agreement of March 12, 1990. The RPR
Board of Directors formed a special committee of independent
directors to review any such RP proposals. On August 22,
1997, RP, with the agreement of the special committee and
the RPR Board of Directors itself, commenced a tender offer
for RPR common stock at a price of $97 per share. On
October 2, 1997, RP announced that it had received
acceptances from 95.9% of the shares it did not yet own,
which increased RP's ownership in the Company to 98.6%. The
remaining RPR shares which were not tendered in the offer
will be canceled and converted automatically into the right
to receive $97 per share in cash. Following the completion
of these transactions, RPR common shares will no longer be
listed on any public stock exchange.

NOTE 10.- RELATED PARTY TRANSACTIONS

Rhone-Poulenc S.A.
The entities comprising the Company manage their cash
separately. In the largest countries such as the U.S.,
France, the U.K. and Germany, the local entities have access
to Rhone-Poulenc S.A. ("RP") cash pooling arrangements
whereby they can, at their own request, lend to or borrow
from RP at market terms and conditions.

Receivables from RP at September 30, 1997 included $8.6
million in accounts receivable from sales of products to RP,
$11.7 million classified as other current assets, and $8.9
million classified as other non-current assets.

Accounts payable related to the purchase of materials and
services from RP were $19.6 million at September 30, 1997;
accrued and other liabilities due to RP totaled $15.0
million. As of September 30, 1997 the Company had $22.7
million of short-term and $123.5 million of long-term debt
outstanding with RP.

Sales to RP totaled $2.3 million in the third quarter and
$13.0 million on a year-to-date basis. Services purchased
from and interest paid to RP totaled $8.7 million in the
third quarter and $24.1 million for the nine-month period.
For the comparable 1996 periods, sales to RP were $8.1
million and $25.8 million respectively; services purchased
from and interest paid to RP totaled $18.5 million and $34.5
million, respectively.

In connection with the 1995 acquisitions from RP, a
subsidiary of the Company issued preferred shares to RP
which have a liquidation preference approximating 645.0
million French francs (approximately $108.7 million) and pay
dividends of 7.5% per annum on a stated value of 145.0
million French francs. The preferred shares are accounted
for as minority interest and are reflected in other
liabilities. The acquisition agreements call for potential

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adjustments to the purchase price of the businesses based on
several factors, including earnings performance.

Centeon
Short-term notes receivable from Centeon, which bear
interest after 45 days at LIBOR plus a margin, totaled $33.9
million at September 30, 1997. Other current receivables
related to Centeon totaled $3.9 million at September 30,
1997. At September 30, 1997, the Company's net investment
in capital leasing arrangements with Centeon totaled $55.7
million. In 1997, the Company issued a series of
shareholder loans to Centeon aggregating $41.6 million and
bearing interest at LIBOR plus a margin. The shareholder
loans are due on December 31, 1997, but are renewable for
successive 90-day periods, ending on December 31, 1999,
subject to certain partial repayment provisions and
financial ratio requirements of Centeon. Current
liabilities due to Centeon at September 30, 1997 totaled
$4.8 million; notes payable to Centeon totaled $24.6
million. In the third quarter, the Company made a $21.0
million cash payment to Centeon representing the return of
an excess distribution made in 1996 of RPR's share of
Centeon's 1996 earnings.

NOTE 11.- CONTINGENCIES

The Company is involved in litigation incidental to its
business, including, but not limited to: (1) approximately
567 pending lawsuits in the United States, Canada and
Ireland against the Company and its Armour Pharmaceutical
Company subsidiary ("Armour"), in which it is claimed by
individuals infected with the Human Immunodeficiency Virus
("HIV") that their infection with HIV and, in some cases,
resulting illnesses, including Acquired Immune Deficiency
Syndrome-related conditions or death therefrom, may have
been caused by administration of antihemophilic factor
("AHF") concentrates processed by Armour in the early-and
mid-1980's. Armour has also been named as a defendant in
certain proposed class action lawsuits filed on behalf of
HIV-infected hemophiliacs and their families. None of the
cases involve Armour's currently distributed AHF
concentrates. In August 1996, the Company, with the three
other U.S. plasma fractionators defending the U.S. AHF
litigation, signed a Settlement Agreement with the
plaintiffs with respect to this litigation which, subject to
certain conditions, provides for payment of $100,000 to each
eligible claimant or claimant group and the payment of up to
$40 million in attorneys' fees. Following a fairness
hearing in May 1997, the court declared the class settlement
offer to be fair to the class. In July 1997, two appeals
filed with respect to the settlement were withdrawn and then
dismissed by the Seventh Circuit Court of Appeals. Payment
into the settlement fund began in August 1997; (2) antitrust
actions alleging that certain pharmaceutical companies,
including the Company, engaged in price discrimination
practices to the detriment of certain independent community
pharmacists and consumers; and (3) alleged breach of
contract by a subsidiary of the Company with respect to
agreements involving a bisphosphonate compound and Lozol(r).

The eventual outcomes of the above matters of pending
litigation cannot be predicted with certainty. The defense
of these matters and the defense of additional lawsuits
related to these matters may require substantial legal
defense expenditures. The Company follows Statement of
Financial Accounting Standards No. 5 in determining whether
to recognize losses and accrue liabilities relating to such
matters. Accordingly, the Company recognizes a loss if
available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company
estimates such losses on the basis of current facts and
circumstances, prior experience with similar matters, the
number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The
Company has also recorded as an asset certain insurance
recoveries which are determined to be probable of
occurrence. If a contingent loss is not probable but is
reasonably possible, the Company discloses this contingency
in the notes to its consolidated financial statements if it
is material. Based on the information available, the
Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters
of litigation would have a material adverse impact on the
Company's financial position, results of operations or cash
flows.

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The Company has been advised of its potential liability
related to alleged past waste disposal practices, including
potential involvement at three sites on the U.S. National
Priority List created by the Comprehensive Environmental
Response, Compensation and Liability Act (Superfund). The
Company's estimated liability for these sites is not
significant.

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ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition

Rhone-Poulenc Rorer Inc. ("RPR" or "the Company") is one of the
largest research-based pharmaceutical companies in the world.
RPR was formed in 1990 by the combination of Rorer Group Inc.
("Rorer") and substantially all of the Human Pharmaceutical
Business of Rhone-Poulenc S.A. ("RP"), based in Paris, France.
RP owned approximately two-thirds of RPR's common stock through
October 1, 1997 and controls the Company. In June 1997, RP
announced that it was studying increasing its ownership of RPR
from approximately 68% to 100%. RP was restricted from
commencing such an offer until after the expiration on July 31,
1997 of the standstill period under the Rorer acquisition
agreement of March 12, 1990. The RPR Board of Directors formed
a special committee of independent directors to review any such
RP proposals. On August 22, 1997, RP, with the agreement of the
special committee and the RPR Board of Directors itself,
commenced a tender offer for RPR common stock at a price of $97
per share. On October 2, RP announced that it had received
acceptances from 95.9% of the shares it did not yet own, which
increased RP's ownership in the company to 98.6%. The remaining
RPR shares which were not tendered in the offer will be canceled
and converted automatically into the right to receive $97 per
share in cash. Following the completion of these transactions,
RPR common shares will no longer be listed on any public stock
exchange.

RESULTS OF OPERATIONS (THREE- AND NINE-MONTHS ENDED SEPTEMBER 30,
1997 VERSUS COMPARABLE PRIOR YEAR PERIODS)

At $69 million ($.50 per share), third quarter net income
available to common shareholders was below the prior year
quarter ($97 million or $.72 per share). Earnings comparisons
were impacted by the reduced contribution from the Centeon joint
venture due to lost business associated with the temporary
suspension of production and distribution at its U.S. facility
as well as recall-related and manufacturing start-up costs.

On a year-to-date basis, net income available to common
shareholders totaled $202 million ($1.48 per share) versus $263
million ($1.94 per share) in the prior period.

Sales
At $1,169 million, reported sales for the third quarter declined
9% from the third quarter of 1996. Sales comparisons were
negatively impacted by 5 percentage points by divestitures and
licensing arrangements in mid- to late-1996 and the 1997
transfers of Rynacrom(r) and Dilacor XR(r) product rights in the
U.S. to other pharmaceutical companies. The effects of currency
fluctuations also negatively impacted third quarter sales by
almost 10%. Excluding these items, sales grew more than 6%, due
to increased volume, including strong performance of
Clexane(r)/Lovenox(r) and contributions from new products
(Taxotere(r), Rilutek(r), Nasacort(r) AQ).

On a year-to-date basis, reported sales were 10% below the prior
year. After the negative effects of divestitures (-7%) and
currency fluctuations (-8%), operational sales growth was 4%.
Strong competition in the U.S. and German respiratory markets,
sales shortfalls of Albuminar(r) in Japan resulting from supply
chain interruptions at Centeon and an overall slow French market
have impacted sales performance for the first nine months of
1997.

In the tables and discussion which follow, sales percentage
comparisons exclude the effects of product divestitures and
currency fluctuations unless otherwise noted.

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Sales by geographic area were as follows:

Three Months ended Nine Months ended
September 30, September 30,
------------------------ -----------------------
($ in % %
millions) 1997 1996 Change* 1997 1996 Change*
---- ----- ------ ----- ----- -------
U.S. $302 $309 8% $754 $795 9%
---- ----- ------ ----- ----- -------
France 365 414 7% 1,153 1,335 1%
Other 273 320 5% 923 1,087 4%
Europe
Rest of
World 229 235 5% 663 679 6%
---- ----- ------ ----- ----- -------
Total Non-
U.S. 867 969 6% 2,739 3,101 3%
---- ----- ------ ----- ----- -------
Total
Sales $1,169 $1,278 6% $3,493 $3,896 4%
===== ===== ====== ===== ===== =======

*Percentage change calculation excludes effects of product
divestitures and currency fluctuations.

U.S. sales growth was principally due to the continued growth of
Taxotere(r) (first launched in June of 1996) and Lovenox(r).
These products benefited from promotional allowances made
available in September. These sales increases were partially
offset by sales decreases in the U.S. respiratory product line.
New market entries and heavy promotional spending by competitors
were the chief causes of the declining respiratory sales.

Sales in France continued to be affected by a slowdown in market
growth due in part to restricted physician prescribing practices
in response to on-going government initiatives to reduce health
care expenditures. Export sales from France to Russia increased
during the quarter, accounting for most of third quarter growth
in this segment. In market France sales for both the quarter
and year-to-date periods declined from prior year levels by
approximately one percent.

Sales growth in the Other Europe region was led by the
performance of the Company's oncological product line in Italy
and Spain. These markets showed sales growth in excess of 15%
for the quarter and year-to-date periods. Sales performance in
Germany trailed prior year performance by 3 percentage points
versus the prior year (2% for the quarter). In the U.K.,
domestic sales are approximately in line with prior year levels,
with newer products offsetting declines in maturing product
lines. U.K. export sales of respiratory products to Japan
recovered during the quarter, bringing year-to-date results on
par with the prior year.

Sales growth in the Rest of World area reflected higher sales of
strategic products throughout Central and South America, with
operational sales growth of almost 30% for the quarter and year-
to-date periods in these markets. These sales gains were
largely offset by reduced Albuminar(r) sales in Japan due to the
suspension of production and distribution of plasma products at
Centeon's U.S. facility.

The Company is focusing on innovation and leadership in targeted
key therapeutic areas including respiratory & allergy,
thrombosis/cardiology, anti-infectives, and oncology. Certain
reclassifications of amounts shown in prior periods have been
made between therapeutic area categories to conform to
classifications now used by the Company. Sales by therapeutic
area were as follows:

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Three Months ended Nine Months ended
September 30, September 30,
------------------- -------------------
Therapeutic
Area/Principal Offerings % %
($ in millions) 1997 1996 Change* 1997 1996 Change*
---- ---- ------ ---- ---- ------
Total Respiratory &
Allergy $194 $262 -20% $648 $805 -9%
Azmacort(r) 60 81 -27% 165 165 -
Intal(r)/Aarane(r) 42 68 -32% 154 202 -18%
Nasacort(r)/ 26 26 - 77 60 28%
Nasacort(r) AQ
Tilade(r) 18 26 -22% 52 63 -10%
Total Thrombosis/
Cardiology
and Cardiovascular $214 $244 11% $662 $726 6%
Clexane(r)/
Lovenox(r) 115 96 29% 323 273 26%
Dilacor XR(r) - 26 - 50 74 3%
Total Central Nervous
System $139 $156 2% $439 $473 5%
Imovane(r)/Amoban(r) 33 36 4% 104 104 10%
Doliprane(r) 23 33 -15% 90 106 -3%
Rilutek(r) 13 7 84% 35 14 158%
Total Anti-infectives $130 $142 7% $405 $448 4%
Flagyl(r) 33 33 7% 91 92 4%
Total Hormone
Replacement
Therapy/Bone $69 $81 -3% $216 $244 -2%
Orudis(r)/Profenid(r)/
Oruvail(r) 42 48 -4% 131 144 -3%
Calcitonins 13 17 -11% 43 55 -13%
Total Oncology $109 $58 104% $263 $152 87%
Taxotere(r) 70 23 218% 152 50 220%
Granocyte(r) 18 18 19% 54 50 22%
Other Therapeutic Areas $314 $335 11% $860 $1,048 1%
Maalox(r) 38 40 6% 113 122 2%
DDAVP(r) 42 32 30% 73 75 -3%

*Percentage change calculation excludes effects of product
divestitures and currency fluctuations.

Third quarter 1997 sales for Azmacort(r) and Nasacort(r) were
affected by second quarter promotional allowances. Market
competition has negatively impacted the rate of growth in
prescriptions written. Three- and nine-month growth in
Nasacort(r) AQ sales reflected the expansion of the aqueous
segment. Third quarter sales declines of Intal(r) resulted from
a weak pollen season in Europe and competition in the United
States.

Clexane(r)/Lovenox(r) posted three- and nine-month sales gains
in the Company's major markets except for France, where
Clexane(r)/Lovenox(r) sales have been affected by increased
competition. The U.S. Food and Drug Administration ("FDA")
recently approved Lovenox(r) for the prevention of deep vein
thrombosis in abdominal surgery and, in June 1997, an FDA
Advisory Committee recommended that the FDA clear Lovenox(r) for
the treatment of unstable angina and non-Q-wave myocardial
infarction. Marketing clearance for this usage was received in
France and Denmark during September 1997. On June 30, 1997, the
Company licensed to Watson Pharmaceuticals Inc. ("Watson") the
exclusive worldwide (except for New Zealand and Korea)
distribution rights to Dilacor XR(r) and its generic equivalents
for a four and one-half year term, after which time Watson has
the option to purchase the product rights. Sales of the
Company's branded (Lozol(r)) and generic indapamide diuretics
continued to be negatively impacted by generic competition.

Central nervous system products showed marginal growth over
prior year periods, led by the recent introduction of Rilutek(r)
in the United States, Other Europe and France. Doliprane(r)
sales in France resumed their decline as a result of direct
market competition.

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Sales of anti-infectives were comparable to the prior year for
the reported periods. While sales increased in certain Asian
and African markets, anti-infectives sales in France continued
to be affected by restricted physician prescribing practices in
response to on-going government initiatives to reduce health
care expenditures. During the third quarter, the Company filed
a New Drug Application (NDA) with the U.S. Food and Drug
Administration (FDA) and a European Marketing Authorization
Application to the Medicine Control Agency in the United Kingdom
seeking the approval to market Synercid(r), an injectible
streptogramin antibiotic for use in serious to life threatening
gram-positive infections. Zagam(r), which was approved by the
FDA for treatment of community-acquired pneumonia and acute
bacterial exacerbations of chronic bronchitis, was launched in
the U.S. in late April 1997.

Sales of hormone replacement therapy/bone products remained
slightly below the prior year periods due to lower sales of
Orudis(r)/Profenid(r)/Oruvail(r) in European markets (U.K.,
Italy) and the continued impact of competition on calcitonin
sales in many markets.

Sales of oncology products were led by Taxotere(r), which was
launched late in the first half of 1996 in major European
markets and the U.S. and continues to show good acceptance in
those markets. Taxotere(r) was launched in Japan at the end of
June 1997. Granocyte(r) recorded good sales performance in
other European markets for the three- and nine-months while
sales in France remained essentially at prior year levels.

Quarterly and year-to-date declines in other therapeutic area
sales primarily reflected reduced sales of plasma derivatives.
Sales of plasma derivatives, particularly Albuminar(r), sold
through operations not contributed to Centeon, were
significantly lower due to the temporary suspension of Centeon's
U.S. manufacture and distribution of plasma-derived products.
Sales of DDAVP(r) increased during the quarter due to the July
1997 introduction of a room temperature spray form, and third
quarter 1997 promotional allowances.

Operating Income
Three Months ended Nine Months ended
September 30, September 30,
---------------------- ---------------------
1997 1996 1997 1996
______________________ _____________________
% of % of % % of % of %
($ in millions) $ Sales $ Sales Change $ Sales $ Sales Change
---- ----- ---- ----- ------ ----- ----- ----- ----- -----
Gross margin $852 72.9% $907 71.0% -6% $2,484 71.1% $2,648 68.0% -6%
Selling, delivery
and administrative
expenses 492 42.1% 506 39.6% -3% 1,438 41.2% 1,553 39.8% -7%
Research and
development
expenses 194 16.6% 207 16.2% -6% 600 17.2% 622 16.0% -4%
Operating income 166 14.2% 194 15.2% -15% 446 12.8% 474 12.2% -6%

Quarterly gross margin improvement is principally due to the
introduction of new products and of licensing fee revenue
from the Dilacor transaction. On a year-to-date basis, the
1997 gross margin also benefited from 9 months (vs. 3 months
in 1996) of licensing fee revenue as a result of the
transfer of product rights to Medeva.

Selling, delivery and administrative expenses ("SD&A")
decreased quarter-on-quarter as favorable exchange rate
variances offset the additional investments made in
developing the Company's commercial presence in Eastern
Europe. SD&A increased as a percentage of sales for the
reported periods primarily as a result of a lower
comparative reported sales base.

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Reported research and development spending decreased versus
prior periods, principally due to the impact of exchange
rate fluctuations. On an operational basis, R&D spending
increased approximately 2% over prior year periods.
Spending increases reflect expanded clinical trials in
developing new indications for current products
(Taxotere(r), Clexane(r)/Lovenox(r)).

Interest Expense, Net
Net interest expense decreased from the comparable prior
year periods principally due to the redenomination of debt
balances into non-U.S. currencies which carry lower interest
rates. Lower average net debt balances also contributed to
the lower interest expense; however net debt increased
during third quarter 1997 as a result of the redemption of
$75 million of preferred stock and the $84 million payment
into a fund in settlement of AHF (anti-hemophilic factor)
litigation (See Item 3 - Legal Proceedings).

Other (Income), Net
Centeon
Losses from equity affiliates, principally the Company's
interest in the Centeon joint venture, totaled $10 million
in the third quarter of 1997 and $29 million on a year-to-
date basis. Centeon's 1997 results were adversely affected
by the temporary suspension of production and distribution
at its U.S. facility related to an October 1996 voluntary
worldwide recall of Albuminar(r)/Plasma-Plex(r) products and
a January 1997 consent decree with the FDA. The negative
contribution from Centeon for the first nine months of 1997
was also impacted by $31 million of pretax recall-related
and manufacturing start-up costs, including costs related to
work-in-process and idle capacity issues and costs
associated with compliance with the consent decree. The
1996 third quarter income from affiliates was essentially
nil, after absorbing Centeon related recall costs of $34
million. Equity income for the nine month 1996 period was
$78 million.

In May 1997, the FDA notified Centeon that it appeared to be
in compliance with current Good Manufacturing Practices and
authorized resumption of distribution of plasma-based
products, subject to FDA testing and lot release, and
pharmaceutical products at its U.S. facility. Based on a
phased-in production schedule, newly-manufactured plasma-
based products were sent to the FDA for lot release in June
and distribution has begun on a limited basis. Centeon
expects product distribution to ramp up gradually over the
remainder of the year. Centeon's earnings performance in
the near- to medium-term will be affected by the timing and
associated costs of market share recovery, reduced
production capacity, product mix and higher on-going
production and commercial costs. In addition, Centeon plans
a scheduled interruption in production during late fourth
quarter 1997 and into early first quarter 1998 to implement
additional facility enhancements.

Centeon sales for the third quarter of 1997, including sales
to certain RPR affiliates, totaled $184 million (1996: $200
million). Gross margin, including recall-related and
manufacturing start-up costs, approximated 30% of sales
(1996: 33%). Losses before the effect of income taxes
totaled $12 million compared to losses before taxes ("IBT")
of $2 million in 1996. On a year-to-date basis, sales
totaled $532 million (1996: $697 million). Gross margin
approximated 31% (1996: 47%) and losses before the effect of
income taxes totaled $29 million (1996: IBT of $140
million). Sales declines and reduced gross margin in 1997
reflected the impact of lost sales of Albuminar(r)/Plasma-
Plex(r) in addition to reduced sales of certain other plasma-
derived products whose production was also temporarily
suspended. Negative IBT reflected reduced gross margin and
higher operating expenses as a percentage of sales
associated with market share recovery efforts and increased
investment in key research and development projects.

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In June 1997, the Company recorded a pretax gain of $16
million ($.08 per share) on the termination of a partnership
arrangement with Watson in connection with the licensing to
Watson of the distribution rights to diltiazem products.

Other (income), net also included net gains totaling $6
million and $20 million for the three- and nine-month
periods, respectively, on foreign currency exchange
contracts used to hedge a portion of the Company's non-U.S.-
based forecasted quarterly pretax earnings. Similar gains
totaled $3 million and $8 million for the comparable prior
year periods.

Income Taxes
The Company's year-to-date reported effective income tax
rate was 31.1% in 1997 and 31.1% in 1996. In July 1997, the
French government proposed legislation to increase the
corporate income tax on both ordinary income and capital
gains. The legislation has been enacted in October 1997
with retroactive effect to January 1, 1997. The Company is
in the process of quantifying the impact such changes would
have on its worldwide effective income tax rate, but
estimates that the legislation has the potential to increase
the Company's effective income tax rate by up to one and one-
half percentage points.

FINANCIAL CONDITION

Restructuring Programs
In December 1995, the Company established a combined $160
million reserve related to the restructuring of Fisons and RPR
operations as a direct result of the Fisons acquisition. The
liability represented expected cash outlays, principally
severance-related, associated with eliminating approximately
1,900 positions primarily in the marketing, administrative and
manufacturing functions. Cash outlays associated with the
restructuring programs totaled $15 million in the first nine
months of 1997 (1996: $ 94 million).

Cash Flows
Operating activities yielded cash flows of $78 million during
the first nine months of 1997 compared with $444 million in
1996. Operating cash flows in 1996 benefited from the
prepayment of certain licensing fees associated with the Medeva
transaction. Working capital needs and cash outlays for income
taxes increased during the period which were essentially offset
by reduced outflows associated with restructuring activities.
In the second and third quarters, the Company made cash payments
aggregating $21 million to Centeon representing the return of an
excess distribution made in 1996 of RPR's share of Centeon's
1996 earnings. In June 1997, the Company received a partnership
termination payment from Watson totaling $20 million. Third
quarter operating cash flows include the prepayment by Watson in
July 1997 of licensing fees and royalties for the second half of
1997 totaling $40 million. In August 1997, the Company also
made payments approximating $84 million related to initial
funding of its share of the class settlement with respect to the
U.S. anti-hemophilic factor litigation.

Investing activities used cash totaling $121 million in the
first nine months of 1997 and provided $122 million of cash in
1996. Current year cash outlays included capital expenditures
in support of strategic products and interest-bearing
receivables with Centeon. Net investing cash inflows in 1996
included proceeds from the divestiture of Fisons' Scientific
Instruments Division; and the sales of assets in the U.K., Spain
and Italy as well as Medeva related proceeds. Proceeds from
sales of similar non-strategic assets in 1997 totaled $101
million. Capital expenditures for 1997 on a full-year basis are
expected to approximate $300 million (1996: $341 million).

Current year financing cash inflows totaled $55 million compared
with cash outflows of $599 million in 1996. Net proceeds from
new borrowings totaled $247 million in 1997 compared with net
repayments of $514 million in the year ago period. During the
second quarter of 1997, the Company repurchased common shares on
the open market at a cost approximating $12 million. These
shares are held in an Employee Benefits Trust to fund future

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employee benefits in the United States. Dividends paid to
common shareholders totaled $132 million ($.96 per share) in
1997 and $127 million ($.94 per share) in 1996. The Company has
made no announcement concerning future dividends pending the
resolution of RP's tender offer.

Liquidity
The Company's net debt (short- and long-term debt including
notes payable to RP, less cash and cash equivalents, cash
pooling arrangements, short-term investments, notes receivable
and time deposits) to net debt plus equity ratio increased to
.51 to 1 from .47 to 1 at December 31, 1996, principally as a
result of a net reduction in shareholders' equity due to the
exchange rate impact recorded in cumulative translation
adjustments. At September 30, 1997, the Company's net debt
approximated $2,515 million compared with $2,381 million at year-
end 1996. The ratio of current assets to current liabilities
increased to 1.41 to 1 at September 30, 1997 compared with 1.35
to 1 at December 31, 1996, partially due to a net reduction in
trade payables and other current liabilities during the period.

At September 30, 1997, the Company had total committed lines of
credit of $2,175 million. Of this amount, $1,925 million
represented multicurrency medium-term facilities with fifteen
banks expiring primarily in the year 2000. The additional $250
million represented one medium-term credit agreement with Rhone-
Poulenc S.A. expiring in 2000. At September 30, 1997,
borrowings outstanding under the Company's medium-term
arrangements totaled $320 million. These borrowings plus an
additional $1,855 million of short-term borrowings were
classified as long-term debt at September 30, 1997 as the
Company had the ability and intent to refinance these amounts on
a long-term basis under the above medium-term facilities.

In August 1997, the Company redeemed 750 outstanding shares of
Series 1 money market preferred stock for $75 million plus
accrued dividends utilizing existing lines of credit.

In 1995, the Company issued $500 million of undated capital
equity notes to RP. Pursuant to the remaining portion of a $500
million shelf registration, the Company has the ability to issue
$325 million in public debt securities and/or preferred shares.

Management believes that cash flows from operations,
supplemented by proceeds from selected divestitures and
financing expected to be available from external sources, will
provide sufficient liquidity to meet its needs for the
foreseeable future. Long-term liquidity is dependent upon the
Company's competitive position, including its ability to
discover, develop and market innovative therapies, build
leadership positions in targeted therapeutic areas, expand its
presence in key geographic markets, and maximize the benefits of
business acquisitions and alliances. The Company believes that
the recent approvals of important new products in key markets,
strategic acquisitions and alliances, as well as other
innovative products and business strategies, will contribute to
the Company's long-term liquidity.

The Company is involved in litigation incidental to its
business. A discussion of contingencies appears in Note 11 of
the Notes to Condensed Consolidated Financial Statements and in
Legal Proceedings in Part II of this Form 10-Q. Following a
fairness hearing in May 1997, the United States District Court
for the Northern District of Illinois declared the class
settlement offer by the four U.S. plasma fractionators,
including the Company, defending the U.S. anti-hemophilic factor
litigation to be fair to the class. The offer under the August
1996 Settlement Agreement provides, subject to certain
conditions, a payment of $100,000 to each eligible claimant or
claimant group and the payment of up to $40 million in
attorneys' fees. In July 1997, two appeals filed with respect
to the settlement were withdrawn and then dismissed by the
Seventh Circuit Court of Appeals. Payment into the settlement
fund began in August 1997.

Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings per Share," effective for fiscal
periods ending after December 15, 1997. The Statement

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simplifies earnings per share calculations and requires
presentation of both basic and full diluted earnings per share
on the face of the statement of income. The Company does not
expect that adoption of SFAS No. 128 will have a material
impact on the Company's earnings per share calculations.

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PART II. OTHER INFORMATION

ITEM 3. Legal Proceedings

AHF Litigation

There are approximately 505 lawsuits in the United States, 4 in
Canada and 58 in Ireland pending against the Company's Armour
Pharmaceutical Company ("Armour") subsidiary, and in some
instances, the Company and certain of its other subsidiaries, in
which individuals with hemophilia and infected with the Human
Immunodeficiency Virus ("HIV"), or their representatives claim
that such infection and, in some cases, resulting illnesses,
including Acquired Immune Deficiency Syndrome-related conditions
or death therefrom, may have been caused by administration of
anti-hemophilic factor ("AHF") concentrates processed by Armour
in the early and mid-1980s. None of these cases involves
Armour's currently distributed AHF concentrates. In most of
these suits, Armour is one of a number of defendants, including
other fractionators who supplied AHF during that period. To
date, approximately 145 cases and claims have been resolved
either by dismissal by the plaintiffs or the Court or through
settlement. It is not possible to predict with certainty the
number of additional lawsuits that may eventually be filed
alleging HIV-related claims.

In December 1993, the Federal Multi-District Litigation Panel
("MDL") authorized the consolidation of all AHF litigation
pending in U.S. Federal Courts for purposes of pre-trial
discovery and the transfer of such cases to the U.S. District
Court for the Northern District of Illinois for this purpose.
Five proposed federal class action lawsuits including one each
in Idaho, Alabama and Wyoming and two in Louisiana, and three
proposed state court class actions in Arizona, Idaho and
Louisiana, have been filed against several fractionators,
including Armour. The federal actions are part of the MDL
proceeding in Chicago. Evidentiary hearings on plaintiffs'
motion for nationwide and statewide class certification in a
Florida case have been completed and the judge has indicated his
intention to deny certification. In July 1996, the judge in the
Arizona case denied plaintiffs' motion for partial certification
of a class of Arizona plaintiffs. In January 1998, the MDL
judge is expected to remand all of the federal opt-out cases to
the courts in which they were filed for case-specific discovery
trial.

In April 1996, the Company, with the three other U.S. plasma
fractionators defending the U.S. AHF litigation, announced a
settlement proposal to resolve the U.S. litigation.
Negotiations with the plaintiffs culminated in the signing of an
August 13, 1996 Settlement Agreement which, subject to certain
conditions, provides for payment of $100,000 to each eligible
claimant or claimant group, and the payment of up to $40 million
in attorneys' fees. One significant condition of the settlement
agreement is that potential subrogation/reimbursement claims by
third party medical providers be resolved to the mutual
satisfaction of the parties and that the class members'
eligibility for entitlements to needs-based public assistance be
maintained.

An overwhelming majority of the HIV-infected hemophilia
community has accepted the proposed settlement. The number of
valid claims will not be known until all of the ineligible
claimants (i.e., those not meeting the definition of a claimant,
fraudulent claims, etc.) are identified and eliminated. The
Settlement Administrator reports that there are currently
approximately 6,000 apparently eligible claimants and
approximately 400 apparently eligible opt-outs.

On May 8, 1997, following a final fairness hearing, Judge John
F. Grady declared the settlement to be fair to the class. On
June 9, 1997, the last day on which to perfect an appeal from
the court's final fairness order, an appeal was filed on behalf
of two claimants. On June 14, 1997, a second appeal was filed
on behalf of sixteen claimants pursuant to an appellate court
rule permitting joinder in the original appeal. In both
appeals, the claimants attacked the class settlement on a number
of legal grounds, seeking the right to opt out of the
settlement. Each of the appeals was subsequently withdrawn and

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then dismissed by the Seventh Circuit Court of Appeals, leaving
the parties free to proceed with the settlement. The Company and
the other fractionators made an initial payment of $420 million
into the settlement fund for claimants on August 13, 1997.
Payment of approximately $30 million was made on August 12, 1997
to the public and private health insurers with whom subrogation
settlement agreements had been reached.

The court intends to terminate the settlement and deem to be opt-
outs those claimants whose subrogation/reimbursement and/or
eligibility issues are not resolved by December 31, 1997. It is
not currently possible to estimate the number of claimants who
may ultimately become opt-outs if these issues cannot be
resolved for them in a timely manner. However, given that the
federal government, nearly all private insurance carriers and
forty-five states have already compromised their claims to the
class settlement moneys, the fractionators are optimistic that
subrogation/reimbursement problems for a majority of claimants
will be satisfactorily resolved within the time period allotted
by the court. With respect to the issue of eligibility for needs-
based public assistance programs, special needs trusts and
federal legislation are expected to resolve that impediment for
many affected claimants.

With respect to the AHF litigation, the Company has contractual
rights to certain insurance coverage provided by carriers that
insured Revlon, Inc., the party from whom it purchased Armour in
1986 ("Revlon carriers"). The Company also has access to
"excess" liability insurance coverage from other carriers,
effective in 1986, for certain of these cases if self-insured
retention levels from relevant insurable losses are exceeded.
The Company believes that there is a substantial level of
coverage (including substantial coverage for legal defense
expenditures) for the Company's estimated probable liability
determined in accordance with Statement of Financial Accounting
Standards No. 5 ("SFAS 5").

Fen-Phen Litigation

The Company has potential liability for personal injuries
alleged to have been suffered by individuals who were treated
with the diet pill, Ionamim(r) (phentermine). In October 1995,
the Company acquired Ionamin(r) from Fisons. In July 1996, the
Company divested Ionamin(r) to Medeva in all markets except
Canada, where it continues to be marketed by the Company. As
part of the Medeva transaction, the Company retained the
liabilities for injuries caused by product sold to third parties
before July 1996. Fisons or Medeva are currently named as a
defendant in approximately 126 actions filed across the country,
including 55 putative state and nationwide class actions.
Plaintiffs allege that the manufacturers knew that these drugs
could cause primary pulmonary hypertension and other serious
adverse effects but failed to warn about those dangers. The
Company believes that none of these claims have any merit and is
vigorously defending these lawsuits. The Company has adequate
reserves and insurance to protect against any potential
liability.

Antitrust Litigation

The Company has been named as a defendant in 139 antitrust
lawsuits. It is presently a party to 11 state court actions
pending in California, two each in Minnesota and Wisconsin, and
one each in the District of Columbia, Alabama, Washington,
Colorado, Arizona, Maine, New York, Kansas, Florida, Tennessee,
Michigan and Mississippi. Additionally, the Company has been
named in 113 antitrust actions brought in several federal courts
which have been coordinated before a judge in the U. S. District
Court for the Northern District of Illinois in Chicago (the MDL
case). The suits allege that many pharmaceutical companies
(including RPR) and wholesalers, in conjunction with certain
pharmacy benefits managers, discriminated against independent
community pharmacist plaintiffs and/or retail chains with
respect to the prices charged for brand name pharmaceutical
products and further conspired to maintain prices at
artificially high levels to the detriment of these pharmacies.

Three of the California actions allege injury to classes of
California residents who are consumers of brand name
prescription products. One of the cases in each of Minnesota
and Wisconsin and the cases in the District of Columbia,

23
<PAGE>
<PAGE>

Alabama, Kansas, New York, Arizona, Colorado, Washington, Maine,
Florida, Tennessee, Michigan and Mississippi allege proposed
consumer class claims. In October 1995, the Washington state
court action was dismissed with prejudice. This ruling is
currently on appeal. The New York action was similarly
dismissed and is currently on appeal. The Colorado consumer
case was dismissed with prejudice in January 1996 and plaintiffs
did not appeal. Plaintiffs' motions for class certification in
Minnesota, Michigan and Maine were recently denied.

Many of the federal actions were brought on behalf of an alleged
class of retail pharmacies throughout the United States; three
of the state cases similarly allege classes of pharmacists
within those states. Plaintiffs in these lawsuits seek
injunctive relief and a monetary award for past damages alleged.
The coordinating federal MDL court certified the class alleged
in the amended consolidated Complaint in November 1994. The
coordinating California state court certified retail and
consumer classes in June 1995.

In April 1996, the Illinois federal district court denied
summary judgment motions filed by the pharmaceutical
manufacturers in the conspiracy case, but granted summary
judgment motions filed by the wholesaler defendants and DuPont
Merck. The court entered final judgment in favor of the
wholesalers and certified certain issues relating to the denial
of the manufacturer defendants' summary judgment motions for
interlocutory appeal to the United States Court of Appeals for
the Seventh Circuit. Plaintiffs also appealed from the orders
granting the wholesaler defendants' and DuPont Merck's summary
judgment motions. In August 1997, the Seventh Circuit affirmed
the district court's denial of the manufacturers' summary
judgment motion and reversed the trial court's summary judgment
ruling in favor of the wholesaler defendants and DuPont Merck.
The manufacturers anticipate that the wholesalers will be filing
a petition for certiorari with the United States Supreme Court
asking the court to review the decision and a motion before the
Seventh Circuit to stay the remand of the case to the district
court while the petition is pending before the Supreme Court. A
September 1998 trial date has been set for the conspiracy case
in federal district court in Chicago.

Several of the companies named as defendants in the federal
class action, excluding RPR, entered into a settlement with
independent and chain pharmacies who are members of that class.
That settlement was approved by the court on June 21, 1996. In
November 1996, the Company entered into a confidential
settlement with the non-class, chain plaintiffs which had filed
separate federal actions. In October 1997, the Company reached
a confidential settlement with two non-party potential federal
retailer plaintiffs. The Company believes that none of the
remaining claims against it have any merit and is vigorously
defending these lawsuits.

Other Commercial Litigation

Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPRP"), a subsidiary
of the Company, has been named as a defendant in two related
arbitration proceedings in Zurich, Switzerland initiated by
Boehringer Mannheim GmbH and its American affiliate, Boehringer
Mannheim Pharmaceuticals Corporation (collectively, "BM"),
seeking substantial compensatory damages for alleged breach of
contract by RPRP. Specifically, BM commenced arbitration
proceedings in Switzerland and litigation in the state court of
Maryland alleging that RPRP breached an agreement related to the
development of a BM bisphosphonate compound and a copromotion
agreement pertaining to the Company's licensed product Lozol(r).
RPR filed a counterclaim in the Maryland litigation against BM
for fraud related to representations made by BM and its agents
prior to the execution of the agreements. In March 1995, the
parties agreed to dismiss the Maryland litigation and to
transfer all of those claims to final and binding arbitration in
Switzerland. At present, two arbitration proceedings before the
same panel are underway. A preliminary hearing on liability in
the bisphosphonate development portion of the dispute was held
in December 1996. A preliminary hearing on liability in the
Lozol(r) portion of the matter was held in January 1997. In
February 1997, based on the partial evidence presented as of
that date, the arbitration panel issued a preliminary, non-
binding opinion in which it questioned the merits of RPRP's
defense and BM's ability to prove every element of its damages
claim. A second, and possibly final, hearing on liability in
the bisphosphonate case was conducted in August 1997. No final

24
<PAGE>
<PAGE>

hearing date has been set in either the Lozol(r) case or the
damages portion of the bisphosphonate case. The Company
believes that the claims asserted by BM are without merit and
RPRP is vigorously defending its position.

Environmental Litigation

Fisons plc has been named along with other defendants in a U.S.
Federal Court action (Olin Corporation v. Fisons plc, et al.,
United States District Court for the District of Massachusetts)
in which Olin Corporation is seeking to recover its response
costs for environmental contamination resulting from operations
at a Wilmington, Massachusetts facility during the 1960s.
Fisons plc and another subsidiary, Fisons Finance Ltd., are
named in a cross-claim and third-party complaint, respectively,
filed by one of the co-defendants in the Olin action, NOR-AM
Chemical Company ("NOR-AM"). NOR-AM is asserting claims for
indemnification and/or contribution if it is found liable to
Olin. Fisons plc has filed a motion to dismiss the Complaint for
lack of personal jurisdiction. In July 1997, the magistrate
overseeing the case issued a report and recommendation to the
effect that Fisons plc was not an owner/operator of the
Wilmington facility but that the court could assert jurisdiction
if Fisons arranged for the transport of insecticides or
herbicides to the site. Olin filed timely objections to the
magistrate's decision and argument before the federal district
court judge was held in late October 1997 and a decision is
pending. The Company is vigorously defending this case.

The Company has been advised of its potential liability related
to alleged past waste disposal practices, including potential
involvement at three sites on the U.S. National Priority List
created by the Comprehensive Environmental Response Compensation
and Liability Act (Superfund). The Company's estimated liability
for these sites is not significant.

Patent and Intellectual Property Litigation

In February 1993, Tanabe Seiyaku Company ("Tanabe") of Japan and
their U.S. licensee, Marion Merrell Dow Inc. ("MMD") initiated
an action before the International Trade Commission ("ITC"), the
administrative agency responsible for handling complaints of
imports which allegedly infringe U.S. intellectual property
rights. The complaint names ten domestic and foreign
respondents, including the Company, and alleges infringement of
a Tanabe U.S. patent, claiming a process for preparing bulk
diltiazem, the active ingredient in the Company's Dilacor XR(r)
product. In January 1995, the ITC Administrative Judge ruled
that Dilacor XR(r) does not infringe the MMD/Tanabe patent under
any circumstances and that the MMD/Tanabe patent is invalid and
unenforceable. An appeal was taken and the Commission
effectively affirmed the ITC Judge's rulings. MMD/Tanabe
appealed to the Court of Appeals for the Federal Circuit which
affirmed the lower court's ruling in March 1997. A petition for
rehearing before the Federal Circuit en banc was denied. MMD
and Tanabe have appealed to the United States Supreme Court.
Briefs relating to the petition for certiorari will be filed in
November 1997.

The Company is a plaintiff in a patent infringement lawsuit with
Chiron Corporation filed in the United States District Court in
California involving the patent licensed exclusively to the
Company by the Scripps Research Institute covering the anti-
hemophilic Factor VIII:C. The Court is considering pending
summary judgment motions. If this case goes to trial, such
trial is likely to be scheduled to commence within the six to
twelve months after the Court's decision on the summary judgment
motions.

The outcomes of the referenced litigation cannot be predicted
with certainty. The defense of these cases and the defense of
additional lawsuits may require substantial legal defense
expenditures. The Company follows SFAS 5 in determining whether
to recognize losses and accrue liabilities relating to such
matters. Accordingly, the Company recognizes a loss if
available information indicates that a loss or range of losses
is probable and reasonably estimable. The Company estimates
such losses on the basis of current facts and circumstances,
prior experience with similar matters, the number of claims and
the anticipated cost of administering, defending and, in some
cases, settling such claims. The Company has also recorded as

25
<PAGE>
<PAGE>

an asset insurance recoveries that are probable of occurrence.
If a contingent loss is not probable, but is reasonably
possible, the Company discloses this contingency in the notes to
its consolidated financial statements if it is material. Based
on the information available, the Company does not believe that
reasonably possible uninsured losses in excess of amounts
recorded for the referenced litigation would have a material
adverse impact on the Company's financial position, results of
operations or cash flows.

26
<PAGE>
<PAGE>

ITEM 6. Exhibits

a. Exhibits:

11 Statement re computation of
earnings per common share.

15 Letter re unaudited interim
financial information.

27 Financial data schedule
(electronic filing only).

27
<PAGE>
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.

RHONE-POULENC RORER INC.
-----------------------------------------
(Registrant)

November 13, 1997 /s/ GUILLAUME PRACHE
-----------------------------------------
Guillaume Prache
Senior Vice President and
Chief Financial Officer

November 13, 1997 /s/ PHILIPPE MAITRE
---------------------------------------
Philippe Maitre
Vice President and
Corporate Controller

28
<PAGE>
<PAGE>

INDEX TO EXHIBITS

Exhibit No.
- --------------

11 Statement re computation of
earnings per common share.

15 Letter re unaudited interim
financial information.

27 Financial data schedule (electronic
filing only).

<PAGE>

<PAGE>
<PAGE>
EXHIBIT 11

RHONE-POULENC RORER INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
(Unaudited-dollars and shares in millions except per share data)

Three Months Ended
September 30,
--------------------
1997 1996
-------- ---------
Earnings per common share, primary:

Net income before preferred dividends
and remuneration $ 79.6 $ 109.3

Less: Dividends on preferred stock and
remuneration on capital equity notes (10.8) (11.9)
-------- ---------
Net income available to common shareholders $ 68.8 $ 97.4
======== =========
Average shares outstanding 137.5 136.2
======== =========
Net income available to common shareholders
per share $ .50 $ .72
======== =========

Earnings per common share, fully diluted:

Net income before preferred dividends and
remuneration $ 79.6 $ 109.3

Shares contingently issuable for stock plan 3.0 2.6
-------- ---------
Average shares outstanding, assuming full
dilution 140.5 138.8
======== =========
Net income available to common shareholders
per share, assuming full dilution $ .49 $ .70
======== =========

This calculation is submitted in accordance with the regulations
of the Securities and Exchange Commission although not
required by APB Opinion No. 15 because it results in dilution
of less than 3%.

EXHIBIT 11

RHONE-POULENC RORER INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
(Unaudited-dollars and shares in millions except per share data)

Nine Months Ended
September 30,
-------- --------
1997 1996
-------- --------
Earnings per common share, primary:

Net income before preferred dividends and
remuneration $ 235.1 $ 296.5

Less: Dividends on preferred stock and
remuneration on capital equity notes (32.7) (33.2)
-------- --------
Net income available to common shareholders $ 202.4 $ 263.3
======== ========
Average shares outstanding 137.1 135.6
======== ========
Net income available to common shareholders
per share $ 1.48 $ 1.94
======== ========

Earnings per common share, fully diluted:

Net income before preferred dividends and
remuneration $ 235.1 $ 296.5

Shares contingently issuable for stock plan 3.0 2.6
-------- --------
Average shares outstanding, assuming full
dilution 140.1 138.2
======== ========
Net income available to common shareholders
per share, assuming full dilution $ 1.44 $ 1.90
======== ========

This calculation is submitted in accordance with the regulations
of the Securities and Exchange Commission although not
required by APB Opinion No. 15 because it results in dilution
of less than 3%.

<PAGE>
<PAGE>
EXHIBIT 15

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

RE: Rhone-Poulenc Rorer Inc.
Quarterly Report on Form 10Q

We are aware that our report dated October 17, 1997, on our
review of interim financial information of Rhone-Poulenc
Rorer Inc. ("the Company"), for the period ended September
30, 1997, and included in the Company's quarterly report on
Form 10-Q for the quarter then ended is incorporated by
reference in the registration statements of the Company on
Form S-3 (Registration No. 33-58229, Registration No. 33-
62052, Registration No. 33-36558, Registration No. 33-30795,
Registration No. 33-23754, Registration No. 33-15671,
Registration No. 33-53378 and Registration No. 33-55694) and
on Form S-8 (Registration No. 33-18707, Registration No. 33-
18701, Registration No. 33-18703, Registration No. 33-18705,
Registration No. 33-58998, Registration No. 33-24537 and
Registration No. 33-21902). Pursuant to Rule 436(c) under
the Securities Act of 1933, this report should not be
considered a part of the registration statements prepared or
certified by us within the meaning of Sections 7 and 11 of
that Act.

/s/ COOPERS & LYBRAND L.L.P.
------------------------------------
Coopers & Lybrand L.L.P.

Philadelphia, Pennsylvania
November 13, 1997

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF
INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

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<PERIOD-END> SEP-30-1997
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