Glaxo's Andrew Witty on CEO choices, financial guidance, smaller facilities and hiring people with heart

GlaxoSmithKline chief executive officer Andrew Witty said in an interview with The Inquirer that leaders must decide whether to use their positions for more than generating cash for the corporation, that the drugmaker is producing more with less square footage of facilities and that he wants GSK to hire people with heart, opinions and skills to lead in the right way.

Witty shared those thoughts during his recent visit to GSK's new building at the Philadelphia Navy Yard.

 

Some of Witty's comments on the building and why the company still finds Philadelphia important were in an Inquirer story published on March 27. A link is here.

Some of Witty's comments on the company's Healthy Communities initiative are in an Inquirer story published online on April 8 and in print April 9. A link is here.

Some of the rest of the condensed and edited interview is below:

Q: How many days per week are you on the road and how do you stay in touch with your family?

A: "I spend about 60 percent of the year on the road, on average. I use the phone and Facetime has been a great invention. Doing video calls is absolutely crucial. I try to stay connected like everybody else who travels."

Q: Do you still run marathons?

A: "I run, but my knees are no longer up for it. I ran every day this week. I ran through Chapel Hill this morning, about 4 1/2 miles."

(Witty, 48, has a son attending the University of North Carolina. GSK had a board meeting at its Research Triangle Park facility before he flew to Philadelphia on March 21.)

Q: Changes in compensation formulas for sales representatives to decrease incentive to sell drugs off-label, increased disclosures of payments to doctors and leadership on fighting neglected diseases in underdeveloped nations might suggest you are interested in doing the right thing. How much of that is personal philosophy versus a corporate need to rehabilitate the image of a company that last year paid a record $3 billion to settle criminal and civil charges with the U.S. Justice Department related to marketing activity and failure to disclose safety information under previous GSK leaders?

A: "I think it is a personal philosophy that extends beyond just me. I think it is very much a feature of many of the people in the company, that they are here because they want to try to do the right thing. What I've been able to do is to unleash a lot of that. As a CEO, it's like any position of authority. You have a couple choices at the very beginning. You can choose to say, 'I'm going to look after only one stakeholder,' let's say shareholders. It's money, money, money. Or, you can take a responsibility that is much broader than that. I think the latter is absolutely critical and true.

"I'm really proud we've led the way on so many of these sorts of initiatives. On the way through to doing the right thing for shareholder, we can also do the right thing for villages in Africa. We can move forward on a transparency agenda. We can also challenge the business model of our industry, that things people believed never could be changed can be changed. On the way to doing all of that, it has unleashed an energy in the company that is very exciting. Everybody in the company should feel that if they have an idea to do something different, it will get heard and there is a reasonable chance it will get done. That makes the whole thing self-perpetuating.

"When I was offered the job [in 2007], I literally took the time to look in the mirror and ask myself what I was going to do with it. So often people don't do that. They kind of slide into a new job without having thought through what they are going to do with it. Then they get swept along by the world. In these sorts of jobs, I think you have to take a moment to say, 'What am I going to do with it, because I'm not going to be swept along by the world.' There are all sorts of pressures, but we're going to do our own thing. We might be criticized and people might not agree with it, but at least we've got an opinion and we're going to push forward. That is the position I took five-six years ago and it has steered me over the last several years. I've been supported by hundreds of people in the company who have a very similar view of the world."

Q: How do you strike the a balance between doing the right thing and meeting Wall Street and investor profit expectations?

A: "We have to make sure our shareholders understand this is a long-term business and quarter-by-quarter is kind of irrelevant. What's important is where we are over the next decade. At our board meeting [March 20] in North Carolina, we made decisions on things that will only succeed - if they evolve - 15 or 20 years from today. Everything we do is dominated by the super long-run view. Once we're all aligned around that, I find very little conflict between doing the right thing and looking after shareholders. Because it is not in the shareholder's interest for us to be criticized by regulators or to find for some reason we're not competitive in a part of the world simply because we haven't challenged our business model and reputation is important to them. They want to own shares in companies with decent reputations, and there is all sorts of good evidence to support that. I don't think I've had a significant challenge from a shareholder on these sorts of issues. Where the tension comes in is when shareholders are looking at the short-term. Yes, we want to succeed is in the short-term, but really where we need to succeed is in the medium- and long-term because that is the cycle time for this industry."

Q: Earlier in 2013, you said the company would give less forward-looking financial guidance to stock-market analysts. Can you explain that decision?

A: "We'll give guidance at the EPS [earnings per share] level. What we won't give is all the details, line by line, above that. I think that is massively debilitating. It takes away flexibility. Here is a hypothetical example. We've given guidance and my labs come out and say, 'Hey, Andrew, we've found this new drug and we need 50 million pounds to develop it most quickly,' and I have to say, 'Well, I can't do that because I've given guidance otherwise.' That would be completely nuts. We have to be completely clear about how we protect flexibility.

"For me, being transparent and giving help to our investors is critical, but ultimately the business has to come first. The share price is a consequence of good business decisions. We can't allow it to work the other way around. We have to remind ourselves of that and remember that it in this business, it is long-term value creation that is critical."

Q: Regarding the prices for vaccines and medicine in the developing world, you have prices for the GAVI Alliance [Global Alliance for Vaccines and Immunization]. Why not sell medicine at the same price to reputable non-GAVI, non-governmental organizations helping patients in those areas?

A: "The most crucial thing is that whatever we do has to be sustainable. There is no point in us saying in 2013 that we're going to give you this amazing donation or a drug at very minimal cost and then in two years decide we simply can't afford to continue that practice and then there is an interruption in supply. Sustainability is number one. Number two, within the overall mix of what we do, we have to balance the interests of shareholders. For the overall portfolio, there has to be a return for shareholders, so ultimately we can't give everything away.

"The challenge becomes how do you create those balances. When you look at our provisions to other organizations akin to GAVI, we have a clear, tiered pricing culture. The poorest countries in the world get the lowest prices. The middle income countries should get a higher price and the richest countries should pay the most. Some people will argue that is wrong. But if you don't do that, it will be very hard to see how you can meet everybody's needs. The rich countries want innovation. They want me to spend billions of dollars looking for new drugs. Folks in the U.S. want a longer life and a better quality of life. If you go to Malawi, where there is no money or influence, they are dying of basic diseases that almost nobody in America has ever heard of. We have to bridge that gap. How do we do that? Tiered prices.

"GAVI is at one end of the that tier. They are very important, but we have a whole series of different people who get various levels of lower prices. It is a sustainable position, so we're able to deliver to shareholders, to people in America who want innovations, to people in Africa who want life-saving treatments. In the last three reports, which is six years in a row, we've been number one in the Access to Medicine Index. We've shown we're having the biggest impact in Africa. We have the highest volumes of products sold in emerging markets at the lowest average price among our top 10 international peers. What that shows you is that we've been able to find a way of delivering impact to the poorest in the world. But now, through our group's R&D efforts, we're also able to develop a lot of break-through innovations up for FDA review. We're trying to get that balance. If you can get that, that is a real good place to be."

Q (sort of): GSK announced in March that it was consolidating research and development groups in suburban Philadelphia locations, but not laying anyone off. About 1900 people will move over the next two to four years. One rented facility in Upper Merion will close with some of going to a second Upper Merion building and most going to an existing facility in Upper Providence. The company closed a 60-person operation in Cambridge, Mass., with some - but not all - of the personnel moving to Upper Merion. Witty said he was proud of having increased the efficiency and results from research and development in recent years. The company has six applications pending with the U.S. Food and Drug Administration.

A (sort of): "In the last six years, I've reduced the square footage of R&D laboratories globally by 50 percent, even before the [March] announcement. But we've never done more experiments than we do today. The company has never been more productive in terms of total activity with half the square footage."

Q: How would you compare some of the main biotech and pharmaceutical hubs such as Boston, Philadelphia, Research Triangle Park and San Francisco (going in alphabetical order)?

A: "There are commonalities and they exist around big academic health-care institutions. But, first, what is becoming increasingly clear is that you can't build a massive capability in every great biotech city in the world. But second, you don't want to. In today's world, you don't need enormous facilities to connect with the intellectual firepower that exists in these cities. We consolidated brick and mortar, which adds the least value. We have massively increased our investment in venture capital engagement. We've massively increased the number of universities and start-ups we partner with. Sometimes we own them. Sometimes we invest in them. As a consequence, we have inroads into all of those different places without having to move everybody from Philadelphia to Boston, say, just because Boston might be the hot place at the moment.

"The world has moved on from the 1950s and 1960s, when it was all about where you built your facilities. We happen to have a legacy facilities here. What's crucial about our legacy facility is that it's where our legacy expertise is. The building is irrelevant. It's what's inside that is important, so you want to not disrupt all of that too much. So by staying in the Delaware Valley, staying in North Carolina, we keep that expertise, corporate memory, judgment and capability. All of that is kept by using new technological approaches and new financial approaches. We can communicate with anybody in the world. Look around this building. Almost every room has a desktop panoramic conferencing unit."

Q: GSK has sponsored a health-care facility in one of dumps in Mumbai, which is home to thousands of that city's poorest people. In the United States, Philadelphia, St. Louis and Denver were sites for discussions with community groups involved directly or indirectly in providing health care, as part of GSK's Healthy Communities initiative. How do those basic-level, health-care efforts translate into serving the needs of people and help the company sell more medicine and tooth paste or other products?

A: "We don't want to be simply a supplier of medicines into a system. We recognize the whole health-care challenge is complex. There are areas where our expertise can really add something. It is about trying to add more value into the system through expertise. If you look at what we're doing in Africa, India and America, all are different. America is in a different universe compared to these other countries. But they all have different sorts of challenges. By working with local communities, it is amazing how often we find it might be as simple as acting as a catalyst to get the right groups together. The Health Communities initiative is a good example, where we get people together to talk about what is needed. That might guide us through some of our donations.

"If I look at India in terms of creating health-care facilities in slums, if I go to Africa where we're training 10,000 health-care workers through our donation program, they are all about how we use our expertise and knowledge and some money. But it's often not about money. It very often is about expertise and human capital, to try to create a better solution. What's crucial is that it's the right solution for each country because they are all different."

(Note: GSK donated $5 million to the city of Philadelphia in 2011, and recognizing the problems in city schools, asked the Philadelphia Foundation to direct money to educational programs. As one example, foundation president R. Andrew Swinney said $750,000 of GSK's money and $250,000 from the foundation went to the Philadelphia Youth Network's WorkReady program to help launch a bio-medical employment training program.)

Q: When you are interviewing and hiring people what are you looking for?

A: "I'm very interested in experience. What is their agenda? What is their opinion? How do they want to set directions rather than simply follow directions? The biggest turnoff for me is when somebody is trying to get a job just because they want a promotion. What are they going to do in that role? Where is their heart? When you find that, you find people who are very exciting. If those same people can display strong leadership skills, have a strong ethical compass, are able to inspire organizations, have the ability to listen as well as tell, then you've found someone with a very nice package of skills. Those people tend to be the winning type of talent we want."

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