Healthy Skepticism Library item: 14292

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Publication type: news

Triple therapy
The Economist 2008 Aug 14
http://www.economist.com/people/displaystory.cfm?story_id=11919385

Full text:

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.