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GlaxoSmithKline's new CEO has unique ideas

By Miriam Hill

Inquirer Staff Writer

NEW YORK - When it comes to picking new drugs, big pharmaceutical companies behave like parents asked to judge their own offspring, said Andrew Witty, the new chief executive officer of GlaxoSmithKline P.L.C.

"No one wants to say their own child is ugly," Witty said this week. With hundreds of millions of dollars at stake to develop a drug, he said he thought the industry could use a little Simon Cowell-style straight talk.

One of Witty's solutions: Create an investment board of outsiders - venture capitalists and executives from biotechnology companies - to review GlaxoSmithKline's prospective drugs with its own scientists and marketers.

"Drug companies tend to get enamored with their own research," he said. "Outsiders don't really care about your feelings. They're willing to say, 'That's not really very attractive.' "

Witty, 43, replaced longtime chief executive Jean-Pierre Garnier in May. His unconventional investment board is one of many changes to cope in an industry struggling with drug-patent expirations that could eliminate billions of dollars in sales in coming years.

"The industry is in for a pretty tough five or six years," he told a group of reporters during a meeting at the Palace Hotel here.

All big pharmaceutical companies, including Pfizer Inc., Wyeth and Merck & Co. Inc., are teetering at the edge of the so-called "patent cliff."

GlaxoSmithKline, which employs roughly 5,900 people in the Philadelphia area, has fared slightly better than some competitors. Its shares fell 7.2 percent this year, compared with a 10 percent average drop among the 15 companies that make up the AMEX Pharmaceuticals Index.

Still, it faces challenges.

Net income fell 3 percent in the second quarter, to $2.57 billion, as competition rose from low-cost generic drugs and sales slowed on its asthma inhaler Advair and controversial diabetes pill Avandia.

Its vaccine against some cervical cancer-causing infections, Cervarix, has gone on sale abroad, but it still faces hurdles in the United States.

Drugs worth up to a quarter of GlaxoSmithKline sales, including top-seller Advair, likely will face generic competition in the next five years.

To cope with the revenue uncertainties, Witty is overseeing $1.4 billion in cost-cutting, to be completed by 2010.

All of which has Witty vowing to refashion GlaxoSmithKline into a company that regularly churns out several strong-selling drugs, rather than one blockbuster, every few years, and capitalizes on more reliable sources of sales, including Aquafresh toothpaste and Breathe-Right nasal strips.

He promises all this with an affability that conforms to the positive stereotypes of an Englishman. He tells a funny, self-deprecating story about the physical therapy his recent marathon training required. He apologizes to a vegetarian guest who was offered few food options.

But charm can carry anyone only so far, and some pharmaceutical analysts are concerned that talk does not always translate into enough change at any company.

"I guess Witty is right in that the first step is admitting you have a problem. The worst you could say is that it's just rearranging the chairs," said Les Funtleyder, a health-care strategist with Miller Tabak & Co. L.L.C. and author of the forthcoming book Healthcare Investing.

Witty insists he is accomplishing much more than sprucing up old ideas with fresh analogies.

The investment board (the company has not yet identified its members) acts more like a venture capital firm than like a budgeting committee. Members are paid in part based on the success of their recommendations.

Researchers have to pitch their ideas, instead of just asking for a budget. Witty also has broken research into smaller teams, known as discovery-performance units, of seven to 80 people who work in the same lab and make their own decisions about what to study instead of getting approval from several people above them.

"We're trying to cut them off from a lot of the bureaucracy," he said.

Before, researchers sometimes had to fly across the ocean for meetings with other team members. Consolidating people in one location, along with the cost-cutting, has led to some job cuts.

In June, the company trimmed 2 percent of its 17,000 global research-and-development employees, or about 350, including about 100 here and another 100 from GlaxoSmithKline's other U.S. headquarters in Research Triangle Park, N.C.

Witty has moved into Garnier's old office in Philadelphia, is looking for a place to live here, and plans to maintain operations in this region.

While Wall Street sees GlaxoSmithKline's drug pipeline as overflowing with question marks, Witty argued that several are edging toward the marketplace.

He called Promacta, a drug that helps people with low platelet counts, "a complete breakthrough product" because it "opens up a whole new set of therapeutic options." An FDA panel recently approved Promacta for short-term use, although concerns remain about its effectiveness and long-term risks.

Witty also is hopeful about the company's vaccines. A GlaxoSmithKline vaccine in late-stage development, for example, aims to prevent lung cancer from returning in patients who have already had it. The vaccine is administered after tumors are removed and targets surviving cancer cells to prevent recurrence.


Contact staff writer Miriam Hill at 215-854-5520 or hillmb@phillynews.com.

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