GSK Surprises Many, Names Emma Walmsley New CEO; Opinion Divided on Witty Legacy

emma-walmsley



GlaxoSmithKline PLC (London) appointed Emma Walmsley, the head of its consumer business, to become its next CEO. She is the first woman to run a major pharmaceutical giant, according to Forbes.

Walmsley will join the board on January 1, and take command in March. She succeeds Sir Andrew Witty, who spent eight years cleaning up messes involving Glaxo’s past bad behavior and re-focusing the drug giant on businesses beyond inventing drugs, including consumer healthcare and vaccines.

GlaxoSmithKline appoints Emma Walmsley as CEO--first woman to run a major #pharmaceutical giant Click To Tweet

Witty undertook various actions to make the company more ethical, posting all of its clinical trial results online and stopping the practice of paying doctors to give promotional speeches about drugs, but Glaxo’s stock price has lagged most of its peers over his tenure.

For Walmsley, the biggest challenge will be getting Glaxo’s core pharmaceutical business to really deliver. GSK got more drugs approved (13) during Witty’s tenure than any other pharmaceutical company other than Johnson & Johnson (New Brunswick NJ), according to the InnoThink Center for Research in Biomedical Innovation.

But their sales have mostly failed to deliver. Some new products, like Shingrix, a vaccine for shingles, and Nucala, a drug for severe asthma, are showing promise, but many investors want Glaxo to also conduct an extramural search for new products.

Walmsley will also have to contend with potential sales declines of the asthma drug Advair. In 2013, Advair generated more than $4 billion, but sales have already fallen 30% as US insurers have switched to other products and managed to negotiate lower prices.

Next year the first generic competitor should emerge in the US. As more generics are approved, analysts at Jefferies estimate, sales will fall by 90% by 2020. Walmsley will have to look at taking steps–up to and including Glaxo launching its own generic–to slow that decline.

In sharp contrast with most pharmaceutical chief executives, Walmsley has little experience with the R&D side of the business. Before joining GSK in 2010, she served in various executive posts at L’Oreal, most recently as general manager of consumer products for China.

It’s not unprecedented for a pharma chief executive to come from outside the drug business: Joseph Jimenez, the CEO of Novartis AG (Basel CHE), previously worked at Heinz. But Jimenez ran Novartis’s drug marketing business; Walmsley has not previously run a pharmaceutical enterprise.

“I am delighted and honored to be appointed GSK’s next CEO,” Walmsley said in a prepared statement. “GSK is a company that leads both in science and in the way it does business. We have momentum in the Group and as the demand for medical innovation and trusted healthcare products continues to rise, we have the opportunity and the potential to create meaningful benefits for patients, consumers and our shareholders. I’m looking forward to working with Andrew and other leaders over the next few months to ensure a smooth handover and to develop plans for 2017 and beyond.”

Glaxo shares closed Wednesday off 1% at 1629.50 pence in London.

Steve’s Take: So what’s happened that’s newsworthy here? Quite simply, GlaxoSmithKline has appointed Emma Walmsley as its next CEO, making her the most powerful woman in the pharma industry and the UK’s FTSE 100 index (see Note #1) as well. Okay, that’s enough to make me pause and reflect a moment or two. Exactly who is Emma Walmsley?

Walmsley joined GSK in 2010 and runs its £6 billion consumer healthcare business, whose products include Sensodyne toothpaste, Horlicks malted drinks and Panadol painkillers. Not exactly the traditional pharma arena

Walmsley will be one of just seven female chief executives in the FTSE 100. GSK, with a market value of £80 billion, is more than twice as big as the next largest female-led company, the tobacco company Imperial Brands, which is valued at £37 billion, according to The Guardian.

Sir Philip Hampton, GSK’s chairman, is leading a government-commissioned review into increasing the number of women senior executives at Britain’s top companies. Part of the plan is to get more women into senior management positions who can go on to lead Britain’s biggest companies.

Walmsley, 47, has been a member of GSK’s top executive team since 2011. Before joining GSK, she was at L’Oréal, the French cosmetics company, for 17 years and has worked in the UK, Europe, China and the US.

Ketan Patel, a fund manager at EdenTree Investment Management, hailed the appointment as a “watershed moment” for the sector, with Walmsley becoming the first female CEO of a major global pharmaceuticals company. Patel said: “The sector has scored surprisingly poorly on diversity at the CEO level.” That is an understatement, to put it mildly.

The move came as a surprise to many investors, says The Guardian, and as a disappointment to those who had hoped for the appointment of an outsider to push through a break-up of the company. GSK shares slipped a mere 1% on the news Wednesday.

Simon Gergel, the UK equities chief investment officer at Allianz Global Investors, which has a 6% stake in GSK, said:

“For those investors who have seen the company’s move towards a more diversified platform in a positive light, this continuation is encouraging. However, it may disappoint investors who have been calling for GSK to sharpen its focus and de-merge its consumer health arm,” which is Walmsley’s former turf.

Other challenges awaiting Walmsley include declining returns from research and development (R&D), increased competition from generic drugmakers and pricing pressure from healthcare providers, especially in the US. Hampton said:

“Emma is an outstanding leader with highly valuable experience of building and running major global businesses and a strong track record of delivering growth and driving performance in healthcare.”

Panmure Gordon analyst David Cox said:

“Being an internal appointment it’s less likely to bring any huge shake-ups, as external hires often like to put their stamp on things… She may face a steep learning curve on the pharma side since she has a consumer-focused background, but will be surrounded by talented management. Fantastic to see a female at the top of such a significant UK company.”

According to The Guardian, GSK is reviewing its pay policy and declined to disclose details of how much Walmsley will be paid. Witty collected a pay and shares package worth £6.7 million last year.

Citi analyst Andrew Baum said of Walmsley, a classics and modern languages graduate from Oxford:

“A lack of an R&D background or a postgraduate science background does not preclude Ms. Walmsley’s ability to materially improve R&D returns so long as she has the appetite and intent to critically assess GSK’s R&D outcomes and add senior external pharmaceutical and R&D hires.”

Thus, to recap, Emma Walmsley, the CEO elect of GlaxoSmithKline, is joining the now seven-strong, still-too-exclusive club of female FTSE 100 bosses.

The Telegraph contends that arguably more relevant than the new pharma boss’s love of Italian red wine and Bikram yoga is the fact that she’s an internal hire who currently runs GSK’s consumer healthcare division and has 17 years of experience at  L’Oréal, the French cosmetics company, under her belt. This makes her the continuity candidate likely to maintain the strategic trajectory set out by her current boss, Sir Andrew Witty.

Witty’s nine years in charge have been characterized by the drugmaker diversifying into higher volume, lower margin consumer staples like toothpaste and headache pills. It was exemplified last year by the $20 billion (£15.4bn) deal with Novartis where GSK traded its cancer drugs business for the Swiss company’s vaccines and consumer health assets.

Consumer products now make up around a third of GSK’s revenues. Operating margins for this side of the business are in the high teens, which, while not to be scoffed at, are far less impressive than those for pharmaceuticals and vaccines, which hover around the 30% mark.

It is for this reason that some fund managers have been calling for a break-up of GSK–with Walmsley’s division first for the ax. They have been disappointed that the company hasn’t either developed or bought new drugs to replace the falling sales of its Advair asthma treatment, arguing that this is why, despite rising a quarter under Sir Andrew’s stewardship, the share price of the UK’s largest drug company has under-performed many of its peers during his tenure.

It didn’t help that the Novartis deal was pushed through at a time when the shares of companies like Merck and Bristol-Myers Squibb where taking off on the back of major oncology breakthroughs. GSK, which was the top-ranked drug marker in the world in 2000 with a 6.9pc market share, was the eighth-ranked last year with just 3.5%.

Some investors had hoped that the new chief executive would have a stronger pharmaceutical background with Abbas Hussain, head of the pharma division, and Patrick Vallance, the head of research and development initially seen as strong internal candidates. Proponents of GSK’s strategy argue that it is better to grow slowly but steadily during a period of almost perpetual revolution in the industry.

And the company did overcome a big patent cliff  without spending billions buying rivals in order to get its hand on their blockbuster therapies. Add to this that the company’s shares have started to outperform more science-focused rivals like cross-town rival AstraZeneca.

This has helped illustrate pharma’s capricious nature, justify the Witty doctrine at least up to now, and is probably why GSK’s chairman Sir Philip Hampton decided Walmsley was the best person (man or woman) to run the company, says The Telegraph. If only we could apply such principles more often in the boardrooms of corporate America–tapping the best CEO talent more often regardless of gender—-we would be doing ourselves a huge favor.

Steve's Take: Corporate America should also tap the best CEO talent regardless of #gender Click To Tweet

As far as Sir Andrew’s legacy at GSK goes, those sympathetic say keeping sales on roughly an even-keel without splurging billions on risky M&A is an achievement when almost half of Advair’s peak sales have been lost, notes the Financial Times. They point to recent strong growth in HIV drugs and new respiratory medicines, as well as signs of revival in the R&D pipeline, to argue that GSK’s pharma business is primed for renewed growth.

But a corruption scandal in China, involving the bribery of doctors to prescribe GSK products, will remain a lasting stain on Sir Andrew’s reputation as an advocate of industry reform and ethics. The record £300 million fine levied by Chinese authorities could yet be followed by penalties from the US justice department and UK Serious Fraud Office. This will contribute to a legacy that even his steadfast backers concede is a mixture of successes and failures.

Note #1: For the edification of those unfamiliar with it, the FTSE 100 is an index composed of the 100 largest companies listed on the London Stock Exchange (LSE). These are often referred to as “blue chip” companies, and the index is seen traditionally as a good indication of the performance of major companies listed in the UK. The FTSE 100 name originates from when it was owned 50/50 by the Financial Times and the LSE (hence FTSE: FT and SE) and the fact it contains 100 companies).