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[e-drug] A three-part prescription for GlaxoSmithKline

  • From: "E-drug" <e-drug@healthnet.org>
  • Date: Sun, 17 Aug 2008 09:30:05 +0200

[A change in the pharmaceutical industry? HH]

The Economist, 14 August 2008

Face value - Triple therapy
Andrew Witty of GlaxoSmithKline has a three-part prescription for the
pharmaceuticals giant

It is a rare company boss, let alone one who has just got the top job,
that can get away with likening his firm's culture to a police state. But
Andrew Witty, the new boss of GlaxoSmithKline (GSK), a British
pharmaceuticals giant, somehow manages to pull it off. He invokes
that analogy tentatively, to be fair to explain the cultural
transformation he wants to see at GSK: away from today's excessively
regimented, rule-based approach towards the "utopia" of a simplified,
values-based culture that trusts employees to do the right thing.

Mr Witty gets away with it in part because he is amiable. He is certainly
very different from his abrasive predecessor, Jean-Pierre Garnier, who
retired in May after a tumultuous term as chief executive. Mr Witty has
already set the tone for a more open style of management. Whereas
J.P., as his predecessor was known, often seemed arrogant, Mr Witty
began his tenure with a listening tour. J.P. controversially insisted on
living in Philadelphia; Mr Witty is not only based at GSK's headquarters
in London, but he even plans to move his office next to the staff
canteen so he can be more accessible.

The new boss can also joke about police states because his loyalty to
GSK is unquestioned. Having spent nearly his entire professional
career at the firm, he is the ultimate insider. By contrast, two years ago
Pfizer, GSK's American rival, picked Jeffrey Kindler, a lawyer with little
pharmaceuticals experience, as its new boss. Perhaps needing to build
up credibility and knowledge of his firm, Mr Kindler took his time
crafting a turnaround plan. Mr Witty, however, has already announced
big changes at GSK. Driving this strategic revamp is his desire to
"derisk" the firm to provide reliable growth with less volatility.

His plan has three components. First, he wants to end the obsession
with blockbusters, which he likens to "finding a needle in a haystack
right when you need it". The industry's reliance on risky blockbusters,
he reckons, makes it vulnerable to "sudden torpedoes" in the form of
lawsuits from generics firms, or regulatory crackdowns like the one that
recently hit Avandia, GSK's big diabetes drug. Instead he wants
researchers to look for many more potential drugs, both small and
large, that can make up a more reliable pipeline. This, he reckons, will
make GSK's drug-discovery efforts more akin to a nimble fleet of
destroyers, rather than two or three vulnerable battleships.

Second, Mr Witty wants the firm to expand its businesses beyond
prescription-drug sales in the rich world, so that its revenue streams
are more diversified. To this end, he has announced a big push into
emerging markets, which many drugs giants had hitherto seen as
mere charity cases. He is also taking the firm into the
branded-generics business through a deal with Aspen of South Africa,
which should help smooth out GSK's earnings volatility.

Third, and most controversially, Mr Witty has been sitting down with his
biggest customers to ask them what future products they are willing to
pay for. This might seem like common sense in any other industry, but
it has been heresy in the drugs trade. In the past Big Pharma
innovated as it saw fit, and big payers (such as Britain's National
Health Service, or America's "pharmacy-benefit managers" and
insurers), then coughed up for its pricey pills. But now health services
and insurers are refusing to reimburse fully for drugs that are deemed
to provide poor value for money. Britain has even set up an official
agency, the National Institute for Health and Clinical Excellence
(NICE), to do explicit cost-benefit analyses of this sort.

In his previous job as head of GSK's European arm, Mr Witty shocked
the industry by striking a deal to delay full reimbursement for certain
new pills until, and only if, they generated the promised health benefits.
He plans to do more such deals, which he says already inform GSK's
decisions about which drugs to bring to market. He is so keen to tie his
firm's research efforts to value in the marketplace that he has rejigged
the bonus scheme for researchers: rather than rewarding them for
regulatory approval of a new drug, it will now reward them for drugs
that are both approved and earning money.
The insider outsider

Mr Witty has a good chance of making all of this work because of his
credentials as an insider. Being a career GSK man, he says, means he
knows the firm intimately, and gives him an emotional bond that no
"hired gun" could have. But Mr Witty also has experience as an
outsider in his favour. Although he has spent nearly all his professional
life at GSK, he once left the company for a year to work at a small
biotechnology firm. He was soon lured back again, but not before he
had seen firsthand how a nimble research operation works. That
experience, he says, is why he wants to break down GSK's research
teams into smaller, fleeter units that compete for funding. He is setting
up a $1 billion research fund that will distribute money based on advice
from a board that includes some leading venture capitalists.

Mr Witty's education as an economist (he trained at Britain's
Nottingham University) also sets him apart from most Big Pharma
bosses. He thinks this training has given him a sceptical eye and a
willingness to make tough-minded decisions. It may also help explain
his intuitive embrace of the sort of cost-benefit analysis done by NICE
that so irks his rivals. But society is increasingly demanding greater
value for money from his industry, and Mr Witty says he has "no
problem with that". His career also took him away from the London
headquarters for many years, which adds to his status as an
insider-outsider. His time in Asia seems particularly to have made an
impression on him. He explains how one change of leadership in India
led to a dramatic growth in sales, and convinced him that one person
in the right job can make a vital difference. GSK's shareholders will be
hoping that Mr Witty himself proves the point.