Angus Russell: The drugs baron who manages without dealers

The Business Interview: Shire may be FTSE100-listed, but it's not part of the big pharma club, its chief executive tells Nikhil Kumar

At first glance, Shire might be mistaken for one of the group of top drug makers collectively known as "big pharma". After all, it sits with AstraZeneca and GlaxoSmithKline in London's FTSE 100 index of leading shares, earning billions in revenues from sales round the world.

But while Astra and GSK between them employ more than 150,000 people across the globe, Shire's headcount is just 4,100. Still, the business has advanced at an astonishing pace, making well-timed acquisitionsguided, above all, by a focus on relatively rare and sometimes life-threatening conditions treated by specialists. This drive has reaped some big rewards: last year Shire, which is set to post first-quarter results this morning, recorded more than $3bn (£1.8bn) in sales – well above the double-digit millions it turned over at the time of its listing in the mid-1990s.

Angus Russell, who took over as chief executive nearly three years ago, pins the origins of Shire's speciality focus on necessity as much as choice. In the decade or so before the listing, Shire, he said, had spent a great deal of money on research but had little to show for it.

"That's why they went public: the venture capitalists wanted to get the company profitable and move it forward faster," he explains. "At the same time, trying to move into primary care 14 or 15 years ago hadbecome a very expensive game where you needed tons of resources, particularly in the US market, to compete with people such as Glaxo and Pfizer and AstraZeneca. So that didn't seem viable either."

Faced with this dilemma, Shire turned to what at the time was an emerging niche. "What had happened around that period was the start of a subsection or subsegment of the industry which was based around what were called speciality pharmaceutical companies, which focused on these specialist products," Mr Russell says.

This tack suited Shire as it meant it could focus its limited resources on a small group of specialists, instead of cultivating ranks of physicians in the primary-care arena. And when it came to research, Shire sidestepped the much-beaten and expensive track of pursuing new breakthroughs. Instead, Mr Russell says, it hunted for smaller firms with promising drugs close to market.

"We found this little company with this product for a relatively unknown – it was known, diagnosed and treated but in a relatively small way – treatment for attention-deficit disorder [ADHD] in kids."

The treatment was Adderall, which swiftly became Shire's keyoffering. But this presented a new problem – the company becamedependent on Adderall, which over time lost its patent protection.

Shire's next move has becomeanother key characteristic of its strategy, buying up new technologies that can be used to improve existing drugs. In the Adderall case, Shire bought an oral drug delivery business that boasted proprietary know-how in the development of long-acting treatments to reduce the frequency of doses. This business had already produced an epilepsy treatment, giving Shire confidence in the technology while also boosting its product portfolio. The long-acting know-how was applied to Adderall, and the company came up with an extended release drug called Adderall XR.

Cue another problem. "Around 2001, we'd been out as a public company for five years, and whilst this strategy was working very nicely for the company, we'd found that unfortunately generic [manufacturers] had become more and more aggressive," Mr Russell recalls. "They weren't just waiting – which was their old model – for your patent to expire. They were now attacking your intellectual property within the period of patent."

Adderall XR is a case in point. Within a year of its release, Shire faced a patent challenge from a generic company. "Suddenly, within a year, you were back on the course, fighting to protect your intellectual property," Mr Russell says.

Faced with the prospect of constant battles with generic firms, Shire began looking for areas where the threat wasn't so pronounced. By now, the company had a broad portfolio of products extending beyond ADHD and across the key pharma markets around the world.

Once again, the focus on speciality drugs was the company's guiding principle, leading Shire to enzyme-replacement therapies that tackle the rare genetic disorders caused by missing enzymes. As such disorders affect relatively small groups of people, regulators offer special protections to encourage investment inresearch and development – something that appealed to Shire.

"In Europe and Japan, we're granted 10 years from launch, and in the US it's effectively 12 years from launch of market exclusivity which can only be broken if a new company finds a superior drug in efficacy terms. So, it can't be challenged by the generics – there's no patent to go after," says a smiling Mr Russell.

All the while, Shire continues to pursue its strategy of developing its existing portfolio. This morning, for instance, it will unveil clinical-trial data on the application of its Vyvanse ADHD treatment to schizophrenia, following similar moves to test for applications in depression and excessive daytime sleepiness.

But looking ahead, speciality firms such as Shire face challenges from the big pharma groups which until now have been content largely to overlook rare disorders. Doing their best to head off the threat posed by the dreaded "patent cliff" – when key drugs lose protection – big firms have been downsizing and seeking new avenues. Earlier this year, Sanofi-Aventis bought Genzyme in the second-biggest acquisition in biotech history, giving it a platform to exploit rare conditions.

So, is Mr Russell quaking in his boots? He acknowledges the new landscape, saying that the Genzyme deal will "be a great test case", but quickly adds that big pharma itself faces a challenge in adapting to new areas of treatment.

"In history, big pharma having bought these kind of businesses – and they've dabbled in some these before – hasn't gone well." He points out that, unlike speciality groups, the biggest firms' business model is built around economies of scale, massive resources and immense global reach.

"Our world does not operate on any of those levels," he contends. "We'll meet people from some of the other companies... and they'll say: 'So how many reps do you have to sell drugs like Elaprase [Shire's treatment for Hunter syndrome]?' And we'll say we don't have any. And that just shocks them instantly."

He smiles again, warming to the theme, and continues: "We have some commercial people who are what we call medical science liaisons, but they're highly trained, highlyscientific people because they need to have a dialogue with specialists. They're not a rep who goes in withvisual aids and gives five unique selling points."

We are back to where we began. Shire is big and profitable. But it's not big pharma as we know it.

Building for the future

Angus Russell was named as Shire's chief executive in June 2008, after spending eight years as the company's chief financial officer. A chartered accountant by training, he's a pharma industry veteran, having spent nearly two decades at ICI, Zeneca and then AstraZeneca.

Outside the office, his passion is architecture, with a particular liking for Frank Lloyd Wright, the American architect who designed numerous private homes across the US and the iconic Imperial Hotel in Tokyo. When he's not on a plane flying between Shire's offices around the world, he's also keen on cars, both classic and modern, which he collects.