Witty Succumbs To Pressure: GSK Starts Formal Search For New CEO
This article was originally published in Scrip
GlaxoSmithKline PLC's beleaguered CEO Sir Andrew Witty is to retire from the company in March 2017. Chair Philip Hampton said the UK pharma major would now start a formal search for a successor and would consider "internal and external candidates for the role."
The news has not come as a big surprise. When Hampton, a former chair of the Royal Bank of Scotland, took on the role at GSK last year finding a new CEO was widely speculated to be one of his priorities.
Witty joined GSK in 1985 as a graduate trainee. By the time he accepted the top job in 2007, many would argue that he inherited a bad hand. Supporters say he has played it as well as he could, and that the UK's biggest drug maker is much better off as a result.
Sir Andrew Witty
GSK was formed in 2000 by the merger of GlaxoWellcome PLC and SmithKline Beecham PLC, creating an unwieldy combination and the world's biggest drug maker at the time, and its share price languished as a result. When he started as CEO in 2008, Witty took an axe to the edifice, launching a painful restructuring process that cut costs and unnecessary infrastructure, diversifying the group's product mix and jettisoning non-core activities.
But he also came to the job just as several US criminal and civil investigations into the company under previous management were drawing to an end. In 2012, Glaxo pleaded guilty to charges of illegally marketing drugs and agreed to pay a $3bn fine tied to lawsuits over diabetes drug Avandia and a variety of other legal disputes involving its antidepressant Paxil. His tenure has also coincided with a wave of cheap competition to some of GSK's biggest-selling drugs, the downturn in the global economy and the rise of austerity.
Despite his efforts to revamp the company, Witty's job has often looked vulnerable in recent years: weak sales, disappointing new drug launches, profit warnings and bribery allegations coincided with a damaging corruption scandal in China. Top-selling drug Seretide Evohaler (salmeterol xinafoate + fluticasone propionate) - known in the US as Advair Diskus - has seen its sales slump since the start of 2015, underscoring the increasing urgency for GSK to build up its overall respiratory portfolio. But launches of new drugs Breo Ellipta and Anoro Ellipta, expected to take up the slack as sales of older products decline, were slow to pick up.
Still, away from the well-documented troubles in China and expensive legal settlements, Witty has won praise for his deal-making.
Witty's tenure has been notable for some novel R&D partnerships as he sought to steer the company through the generic erosion of its mature brands.
After the formation of the HIV company ViiV Healthcare with Pfizer in 2009 to position it as a leading HIV player, the most striking of these was the 2014 asset swap agreement with Novartis. With this, GSK offloaded its marketed oncology portfolio, related research, and development activities and rights to its AKT inhibitor afuresertib, in return for Novartis's global vaccines business (excluding influenza vaccines). GSK will also grant commercialization partner rights for future oncology products to Novartis. In addition the two firms created a new world-leading consumer healthcare business, in which GlaxoSmithKline will have majority control.
"Witty will leave the company primed for growth," said Datamonitor Healthcare lead analyst Ali Al-Bazergan. "He will hope his legacy will stem from his turnaround strategy and his bold $20bn asset swap with Novartis - moving away from riskier high-margin pharmaceuticals in favor of consumer health and vaccines."
Citi analysts agree GSK is in better shape than at the start of Witty's tenure. "Sir Andrew will leave as CEO in considerably stronger position that when he inherited it from his predecessor in 2008. However, as the relative share price performance over the last six years has indicated, there is still much work to be done."
GlaxoSmithKline's respiratory and infectious diseases portfolios will remain the cornerstones of its prescription pharmaceutical offering during 2014–24, thanks to the contribution of blockbuster asthma and chronic obstructive pulmonary disease (COPD) therapy franchises (Breo and Anoro) and a broad vaccines and HIV portfolio (Tivicay), respectively.
Growth of the respiratory and infectious disease portfolios, combined with smaller gains in the immunology and inflammation, and endocrine, metabolic, and genetic disorders areas, will more than offset the impact of the divestment of the oncology portfolio to Novartis and large declines in cardiovascular drug sales due to generic incursion.
However, it will face competition from Boehringer Ingelheim in the respiratory sector and Gilead in HIV.
The company's outlook has improved in recent months, with earnings forecast to grow by a double-digit percentage this year. That might help explain the unhurried timeline of the transition, along with the board's apparent reluctance to disrupt the business at a critical juncture for GSK, as the business shifts away from pharmaceuticals and toward consumer health care and vaccines.
But some investors want Witty's eventual successor to bring in radical change at GSK. One, Neil Woodford, has been urging the company to consider spinning off some of its units to boost payoffs to investors. According to Woodford GSK should be split in four parts – with consumer health, vaccines, prescription drug brands and HIV-focused ViiV Healthcare all going their own way. Other investors have suggested GSK buy out Pfizer Inc and Shionogi & Company Inc.'s interest in ViiV Healthcare Ltd, as well as Novartis' interest in their consumer joint venture.
Witty had considered an IPO of its stake in ViiV, but the plan was scrapped last year.
What Happened Last Time
Last time around GSK had the pick of three exceptional internal candidates for the top job, Witty, who was then president of its European pharmaceuticals business, David Stout, president of pharmaceuticals, and Chris Viehbacher, president of its US pharmaceuticals division, with Witty being appointed in the autumn of 2007 and succeeding J P Garnier when that executive retired as CEO in May 2008.
The company will probably want to avoid this time around what happened then, irrespective of whether an internal or external candidate is picked: both Stout and Viehbacher left GSK in the months after the Witty appointment, despite apparently being offered various incentives to stay, with Viehbacher most notably leaving to head the European big pharma competitor, Sanofi-Aventis, now called Sanofi.
Witty was, and still is, an engaging public speaker, and had a formidable grasp of the issues facing the industry back in 2007. He was said to be highly experienced in European pricing and value issues, and it may be disappointing that significant progress has not been made in value-based pricing, with payers remaining focused on pricing and costs to this day.
In some of his first utterances on strategy, Witty highlighted increased investment in consumer healthcare, vaccines, emerging markets and the increased diversification of it pharmaceuticals business, which in 2008 was dominated by 10 high-selling products; it's interesting to note such areas remain prominent in GSK's thinking today. But Witty's initial concerns back in the day were a high patent cliff, improving the efficiency of R&D and reducing the late-stage, Phase III, attrition of promising therapeutic compounds.
On announcing his retirement, Witty said: "GSK is a very special company with an inspiring mission and many dedicated people. By next year, I will have been CEO for nearly 10 years and I believe this will be the right time for a new leader to take over. In making this decision it has been important to me that the Board have the time to conduct a full and proper process and that we sustain the momentum of our current business performance, capitalizing on the very significant progress we made last year to strengthen the group. By doing so we will strongly position GSK to achieve the medium-term outlook set out to investors last year and deliver a return to core earnings growth in 2016."