GSK's underdog seeks new remedies

Andrew Witty won the race to the top job at GlaxoSmithKline yesterday. That's the easy part done.
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The Independent Online

The candidates have sashayed in front of the board and answered tough questions from the panel of judges, and finally, after one of the longest beauty parades in corporate history, the winner has received his crown. Mr GlaxoSmithKline 2008 is: Andrew Witty.

Britain's premier drug company has taken two years to choose a successor to Jean-Pierre Garnier, who steps down as chief executive next May, and the board weighed up three of the company's most promising executives before announcing its choice yesterday morning. Investors had been starting to worry that the candidates might be spending more time elbowing each other aside than getting on with tackling the myriad challenges facing the pharmaceuticals giant, but the resolution – and the winning candidate – was greeted with broad applause.

The judging panel, GSK's austere board, led by its chairman Sir Christopher Gent, plumped for youth. At 43, Mr Witty represents a new generation.

Certainly, his age and his rapid ascent through the ranks speaks of an impatience and an ambition that the company will need after years of share price underperformance since the merger of Glaxo Wellcome and SmithKline Beecham in 2000. He has improved an earlier shortness of temper and inability to suffer fools, and won an extraordinary reputation as a public speaker. Indeed, he came to prominence internally in the first post-merger management conference, when he gave an evocative speech explaining his alien emerging market operations to a room of execs whose main experience was in the much more rigid West.

Mr Witty's two biggest jobs at GSK so far have been president of the European drugs business and as senior vice-president in the Asia-Pacific region. Apart from a short stint running the American marketing operation, the US is largely absent from his CV – a fact that made some US investors uncomfortable yesterday. After all, the US continues to represent more than half the company's profits. Certainly, part of Mr Witty's task during the long hand-over from Dr Garnier will be to woo bruised Amer-ican investors, many of whom appeared to favour the better-known Chris Viehbacher, head of US pharmaceuticals for the company, or David Stout, the global pharmaceuticals operations president.

The point, though, is that the US may not be as important from now on. "Given that the world is a tougher place to find growth in, emerging countries are increasingly becoming the focus of all the pharmaceuticals companies," says Mike Ward, European pharmaceuticals analyst at the life sciences-focused investment bank Nom-ura Code.

Mr Witty's "unique selling point" as a candidate is his experience in Singapore and, during that time, as an economic adviser to the governor of Guang-zhou province in China, said Mr Ward.

GSK has been pouring money into Singapore, where it has sited big new manufacturing plants, research and development facilities and focused capital investment in its vaccines business. It has also secured a powerful entry into the Chinese market through sales of its hepatitis drug Zeffix. The relationships Mr Witty has in the Asia-Pacific region, including in fast-growing India, are only going to increase in value, the board decided.

Mr Witty's four-and-a-half years as president of the European pharmaceuticals business has been a microcosm of the problem facing GSK and the rest of the industry on a global scale. In the developed West, drugs prices are under relentless downward pressure and executives' time is spent negotiating under ever more tortuous government price controls to safeguard profits as much as possible; in the developing East, the challenge is winning a bigger share of an expanding market.

By plumping for an executive whose experience is of price controls in Western Eur-ope rather than the market free-for-all that has until recently prevailed in the US, GSK is signaling that it has recognised the big changes coming in the US. Although explicit government controls are off the agenda for the time being, and may not become a live issue even if a Democrat wins the White House next year, health insurers are wielding their increasing muscle to push down prices, through bulk-buying agreements and a willingness to steer (or force) customers to use cheap generic alternatives to expensive branded medicines. Free consumer choice – the previous US model – is breaking down, and analysts point to drug sales data for August, up an anaemic 3 per cent, as evidence of how quickly a slowdown is occurring.

Mr Witty is almost, but not quite, a company lifer, having joined Glaxo, as it then was, as a graduate. His one stint away was 12 months at the British biotechnology company Biocompatibles in 1990. He is a marketing man, rather than a scientist – another shift after the tenure of Dr Garnier, who focused on inventive new ways to improve GSK's research and development operation. His legacy will be to have arranged the operation into "centres of excellence" focused on particular disease areas.

"I have only spoken to one investor who complained that GSK should have chosen a candidate aligned with research and development rather than a marketing person," said Nomura Code's Mr Ward, "But the answer to that is: no, they shouldn't have. GSK cannot claim to have solved R&D, but they are having more drugs approved than anybody else among the bigger companies." Indeed, the board has been impressed with Mr Witty's work on evolutionary ways to improve sales and marketing across the company – a project that he was handed as part of the grooming process for the three candidates for chief executive.

Kevin Wilson, pharmaceuticals analyst at Citi, said: "Mr Witty's experience in driving significant volume growth during his tenure in charge of Europe, in the face of falling prices, will be valuable for guiding the US business as it faces not dissimilar challenges."

Mr Ward said Mr Witty's rise through the field of internal candidates has been as rapid as his rise through the company to reach contention in the first place. "A year ago there were concerns about his relative youth, but the world has moved on since then and, with Roche having appointed Severin Schwan, who is younger than Mr Witty, GSK could afford to say, why not go with talent?"

And while his relative youth suggests he has time to think about the seismic shifts in the global pharmaceuticals industry, the more immediate issues in his in-tray include leveraging up the balance sheet and dealing with the clamour for the disposal of the consumer healthcare business that makes Aquafresh and Lucozade. But the most challenging issue might be one of the most tricky: hiring the additional talent to buttress his young leadership. While GSK spent much of yesterday praising the talents of Messrs Viehbacher and Stout and insisting they were expected to play a continued role in their current jobs, their disappointment – and the public praise – will certainly tempt headhunters to come a-calling for them.

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