GSK trying for culture shift ... and more profit

Coming out of 2011, GlaxoSmithKline hopes that it turned a corner, with leaders saying they hope several years of changes will result in higher and more consistent profits, but also a bit more civic good.

"We want to have the right people, acting the right way with the right set of values," North American pharmaceutical president Deirdre Connelly said from the company's Center City Philadelphia office. "When you do that, you evolve a culture that is expected by society."

An Inquirer story on GSK and its impending move from Center City to the Navy Yard is Tuesday's paper, with a link here.

In interviews last week around the 2011 full-year and fourth-quarter earnings announcement, leaders shared other thoughts and opinions.

GSK, like some other drug makers, is also disclosing, and posting on its web site, lists of the money it paid to health-care providers for speaking engagements and other events. Chief executive officer Andrew Witty, who took over in 2008, co-chaired a committee with billionaire Bill Gates to help do more to fight neglected tropical diseases (NTDs). At the turn of the year, Witty was among those knighted by the queen of England.

Witty noted again in a conference call with reporters that the company was the first major drug company to shift away from a bonus system for sales representatives based solely on the number of prescriptions written by the doctors they visited.

Asked if he needed different kinds of sales reps in that framework, Witty said, "They will need to be trained differently. But it can be the same person."

GSK still has a few dicey situations born more than a decade ago that have not been completely worked out. Late in 2011, the company said it had agreed to pay the U.S. government $3 billion to settle allegations that it had illegally promoted drugs, including the diabetes treatment Avandia, between 1997 and 2004. The Justice Department has not commented.

University of Michigan business professor Erik Gordon, who follows the pharmaceutical industry and generally credited Witty's creative approach to GSK's challenges, likened the new sales philosophy to reformed criminals' saying, "We'll make the world a better place by not robbing banks."

Stock market analysts note the company is striking a balance between buying back stock and paying dividends while gradually improving its return on research and development. With the London-traded stock near its 52-week high, many analysts are being patient.

“The company has a comparatively robust revenue and earnings per share profile through 2015 – without having had to do a major pharma merger lately – but its valuation seems to reflect this already, and this is our only real apprehension with the name,” Bernstein Research analyst Tim Anderson wrote in a note to clients.

But Wall Street patience can evaporate quickly and most investors care more about sales and profits, less about how they are achieved. The Street has come to treat billion-dollar, off-label marketing fines as the cost of doing business and federal officials have said the only way to end the practice is to send executives to prison when the situation warrants. Four former executives from medical device manufacturer Synthes were sent to prison last year, but such examples are rare.

Connelly said pharmaceutical executives have to understand, if only for the sake of the business, that they are selling products that carry greater expectations from patients and society.

“Hopefully, all executives recognize that it’s unacceptable to not act with the highest degree of integrity because what’s at stake is people’s lives,” Connelly said. “But if they don’t do it for that reason, hopefully they will be smart enough to realize they will be held accountable and that’s a good thing. I’m fine with that. If people can’t take a medicine that we guarantee is quality — and we explain to them the benefits and risks so they can make an appropriate decision — then we’re all out of business. Forget jail.”

There are batches of reasons for changes regarding sales reps in the industry.

Health insurers, private and governmental, have realized that their customers cost them less if they stay healthy overall, so insurers are pushing hospitals and doctors away from the notion of more is better and insisting on improvement of overall health. That changes the sales dynamic.

About 30 percent of doctors, according to Connelly, don't want any visits from pharmaceutical reps. Some doctors look for information online or via the phone and some companies are shifting to call centers to answer questions and reach out to see if the doctors needs a delivery of samples.

While individual doctors can prescribe what they like, GSK estimates that by 2014, 65 to 70 percent of U.S. doctors will be employees of big, hospital-based groups, which also means a different kind of sales effort.

After seeing reimbursement changes from insurers and seeking advice from doctors, Connelly and Glaxo organized sales reps into groups, such as the best-selling respiratory category.

"The doctors said, 'I don't want 10 people talking to me about the same thing,' " Connelly said. "And in the old days, we had 10 people talking about Advair. But they also said, 'I don't want one person talking to me about all the therapeutic groups, a jack of all trades and master of none.' "

There is also ongoing litigation about whether sales reps should be eligible for overtime.

Amid all of that, GSK now bases bonuses on a combination of scores on exams testing knowledge of their products, feedback from doctors, supervisor evaluations, and group profit.

“The top players in this company then are still the top players,” Connelly said regarding industry predictions that the best reps would flee for competitors. “There is no difference in the rate of turnover.”

Connelly, who marked her third year with GSK on Feb. 9, started her career as a sales rep with Eli Lilly.

"The industry went from not using incentives with reps - when I was a rep - to thinking we were selling cars, so the more cars you sell, the greater the compensation," Connelly said. "We translated that mode to the pharmaceutical industry, which was a mistake. We're the first company that has taken that out of the equation and I'm very proud of that. We're setting a new path and I know others will follow. The government is supportive and the customers are supportive.

"Why are we doing this? What we're dealing with is not cars or chocolate. I love both, but what we deal with is health and life. It's preventing disease or extending life by six months or 12 months for someone with cancer. It's getting someone out of depression - provoked by their Lupus - by feeling better from taking our medicine.

"If we don't have physicians that trust us and patients that trust us, we don't have a business. In the early 2000s we started to erode that trust and we were losing our opportunity to grow and operate in this world. We have the world's permission to do what we do. We've earned it because we've brought great medicines to the world but you've got to earn it every year. You don't earn it once, then act like an idiot and keep it forever. Nothing in life happens that way. We lost our way in the early 2000s, but I'm proud of GSK for making the changes we made."