Glaxo's heir-apparent gets ready for his biggest test

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The Independent Online
Glaxo Wellcome is at the end of an era. When the drugs group announces its half-year results to the City this Thursday, it will arrive stripped of US patent protection for Zantac - the hugely successful anti-ulcer drug that has transformed Glaxo into the world's biggest pharmaceuticals company.

For Sean Lance, the group's South African chief operating officer, who will take over as chief executive less than a year from now, stepping into such a high-profile position at this critical juncture is no bad thing. "I like the hill being steep. When you run you must feel your calves burn. Then you know you are achieving something."

The phrase says much about Mr Lance's passion for fitness and sport. Born in 1947 in Pretoria, he captained his province at football and hockey, holds a black belt in karate and likes to go running each evening to clear his head.

It also shows he has a nice line in understatement. Zantac, which once earned Glaxo pounds 7m a day and even now represents a quarter of its total turnover, could lose 80 per cent of its US sales over the next two years. After years of rock-steady growth, analysts predict flat earnings for Glaxo this year and next.

But behind the scenes, Mr Lance and his chairman, Sir Richard Sykes, have prepared the ground for life after Zantac. "The organisation got through the psychological shock of losing Zantac at least 12 months before we really went public on it. We said: `that's it. Let's finish this. The caravan moves forward'," says Mr Lance. Helpfully for him, legal wrangles between companies hoping to sell a generic version, mean Zantac is unlikely to face any competition before September.

The work has been worth it. While management of Zantac's day-to-day decline is only just starting, for investors it already seems like yesterday's problem. The focus at the interims, expected to show a slight dip in profits to pounds 1.5bn, will not be on Zantac's decline, but on new drug growth.

In some ways, all this makes Mr Lance's task much more daunting. Not only is he taking over at a watershed, but he is stepping into some very big shoes. Glaxo has been dominated in turn by long-time chairman Sir Paul Girolami, aggressive American Ernest Mario and since then by the clinical Sir Richard, who masterminded the pounds 9bn takeover of Wellcome. Trickiest of all, Mr Lance is taking over gradually. While he becomes chief executive, Sir Richard will remain executive chairman. Making sure Glaxo stays on top while stamping his mark will be Mr Lance's biggest challenge yet.

Judging by his comments so far, Mr Lance favours evolution over revolution. Emerging markets will be high on his list of priorities. After joining Glaxo to run its South African business in 1985, he has been responsible for every market outside the Americas, including the Far East and Japan, Australasia and the Middle East.

Countries with little spending power have traditionally been low priority for big drug groups. But refreshingly, Mr Lance recognises both the humanitarian side of his job and that building links now with governments and physicians will pay handsomely as third-world economies get richer. "Don't try to sell them every drug you make. See what they need. A local presence is more vital than maximising profits."

Mr Lance is unconcerned about his lack of experience in the US. "That market is not particularly complicated. It's just big numbers. And the US market has changed completely. If I'm out of experience, it's by three or four years, not 20 years." But he is acutely aware of the need to acclimatise the US sales force to the loss of Zantac.

"Where we do still have a job to do is in local marketing, and that depends on the skills of the management on the ground. Right now the sales force is selling only one or two new products. That's easy. Now they will have to sell four or five. That will take discipline."

Raising productivity in research and development is also high on the agenda. Glaxo's annual spend on R&D is typically 14 per cent of sales, yet historically it has brought only one significant drug to market every year. This is set to triple, helped by huge advances in genetics and combinatorial chemistry, which can cut new product development time in half. The potential payback, given margins of over 30 per cent, is enormous.

There are also gains to be had in manufacturing, traditionally an area neglected by drug companies. Glaxo still has 40 production plants around the world and could probably live with half that. The group recently raised almost pounds 200m from selling two factories to suppliers, suggesting there is plenty of capital to be liberated and ploughed more profitably into R&D.

Mr Lance's short-term goal, however, is to improve communication between the group's 54,000 employees and open the company to the outside: "What we haven't really done successfully yet is expose investors to the depths of management at Glaxo. It is not just about one or two key individuals. Those who see us close up are always surprised. If you are number one, you can attract top people - just like Manchester United does."

Fostering a more open culture is one of management's most difficult tasks, but Mr Lance's approachable manner is, at least, very different from the slightly arrogant Glaxo style of old.

What he is not thinking of is another takeover. "Do it again? Not easily. It was a big shock. Glaxo people felt initially like a predator that had caught something. But when we took the decision to manage it as a merger, the only person who knew he had a job, was Sir Richard," says Mr Lance.

This amounts to only the beginnings of a strategy. But with Glaxo in good shape, investors would not thank him for undue haste. At just 49, Sean Lance has plenty of time. He has only just started to climb his hill.

Sameena Ahmad