Pharma plays the blame game at the top

While only two-thirds of the way through 2016, the pharmaceutical industry has seen plenty of turnover at the top with seven major firms announcing leadership changes. Sometimes the CEO is the fall guy when pharma companies aren't up to snuff; other times, a leader needs to be held accountable.

Many biotech and pharmaceuticals companies, including Valeant Pharmaceuticals, Novo Nordisk, Biogen and others, are responding to disruptive market-related turmoil by ousting their leadership in hopes that change at the top will trickle down. It's not always easy to tell when the CEO is to blame, but the choice of successor can be an indication.

An annual survey by PwC's Strategy&, a strategy consultancy business, showed that in 2015, nearly 23% of new CEOs across industries were brought in from outside the firm. While the report from April notes it's still the practice for the majority of companies to rely on insiders when doing succession planning, outsiders are becoming more popular when big firms want to shake things up. The healthcare industry accounted for 29% of the outsider CEOs brought in to run things.

"Boards of directors following well thought-through succession plans should have a deep bench of strong, internal candidates. However, when the company needs to make transformational changes away from their former strategic and operating plans, boards should factor the outsider option into their succession planning," said Gary Neilson, a principal with PwC U.S., in a statement.

"Outsiders don’t have biases and commitments built up over the years, and can make changes more objectively. They also may be able to look at the organization from a broader perspective based on an understanding of what the world will require in the future," he added.

Novo Nordisk is the latest pharma to make changes at the top in 2016. Lars Rebien Sørensen has been the CEO of the Danish biopharma for the last 16 years and wasn't slated to exit the role until 2019, but a surprise announcement from the diabetes drug maker in early-September brought news that long-time insider Lars Fruergaard Jørgensen will take over the role on January 1, 2017.

The early retirement of Sorensen could be an indicator that Novo Nordisk is struggling more than the company has let on. The diabetes market-leader has been dealing with pricing pressures for several years now and has seen its drugs infamously left off some of the largest Pharmacy Benefit Manager's national formulary lists. While Novo Nordisk has insisted that this hasn't jeopardized the market-leading position of its GLP-1 Victoza (liraglutide), Eli Lilly & Co. counters that its GLP-1 antagonist Trulicity (dulaglutide) now has the most new-patient starts and is growing the 10-year-old market.

The company's answer was to bring in Jørgensen to turn things around. Yet, bringing in an insider may just lead to more of the same ideas and practices.

In some cases, it's easy to see why an outsider would be needed and who is to blame. Take Valeant Pharmaceuticals for example; the company brought in then-Perrigo CEO Joseph Papa after ousting long-time leader Michael Pearson earlier this year.

Unless you've been in a cave, it's hard to miss the scandal that has surrounded the specialty pharma for over a year now. Once a Wall Street darling and lauded for its unique business model of growth-through-acquisition, Valeant has seen a rapid decline – losing more than 90% of its value – as accusations of fraud, price-gouging and unseemly behavior continue to pile on.

Bringing in Papa was a way for the company to distance itself from the oft-brash Pearson, who was known throughout the industry for his larger-than-life personality and blunt comments. It's too early to tell whether Papa can fix what is already broken.

Papa himself might have been an interesting choice. His former company Perrigo isn't without problems and long-time insider John Hendrickson, who took over for Papa, hasn't made any course corrections. The generic drug firm has lowered its guidance on four occasions since Papa left in April and its store-brand over-the-counter business has seen few launches this year.

Another embroiled biotech chose to oust its six-year CEO – without a succession plan in place. Biogen announced during its second quarter earnings call that George Scangos would step down and the company would begin the search for new leadership. Biogen is considering both internal and external candidates.

While Chairman Stelios Papadopoulos touted the strong record of its departing leader at the time, it's the identity crisis and high-risk pipeline at Biogen that Scangos put in place that ultimately brought about the end of his tenure.

Scangos put a large emphasis on the company's hemophilia products and the pipeline has become increasingly risky over the last few years, with a move away from some of the multiple sclerosis drugs that it has been built upon and a very high-risk bet on Alzheimer's. Yet, the company was forced to cut 11% of its staff last year and has announced that it would spin out its hemophilia business. Ultimately, Biogen is trying to get back to the core focus it had six years ago.

On the other hand, we've seen smooth transitions this year from long-time execs who are departing (mostly) successful companies on their own terms. Gilead's John Martin passed the reins to his lieutenant John Milligan at the beginning of 2016 after 20 years at the helm. Martin was praised with growing the company from a small start-up to the behemoth biotech it is today. While Milligan will be faced with a dwindling hepatitis C business and controversy over drug pricing, he has been praised by analysts for his ability to lead the company going forward.

On the same note, Eli Lilly announced John Lechleiter would step down at the end of the year after 8 years at the helm and nearly four decades with the company. Lechleiter worked closely with the board of the diabetes drug giant to pick his successor – head of the company's biomedicines division David Ricks. Meanwhile, Ricks will face a highly competitive diabetes market and an increasingly commoditized insulin market, as well as a crowded oncology space.

While Andrew Witty has certainly overseen a number of missteps as the head of GlaxoSmithKline, the 20-year veteran of the British pharma is leaving on his own terms in March 2017, announced GSK this March. The big pharma has endured a number of bribery settlements and backed off oncology just as competitors were beefing up in the space, yet, it has flourished in HIV, respiratory and vaccines. GSK is conducting its search for a new leader amongst both internal and external candidates. 

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Filed Under: Corporate News
Top image credit: Jac. Janssen