GlaxoSmithKline CEO to leave next year as investors debate direction
by Ben Hirschler,
2016-03-18 06:30:58.0
LONDON — GlaxoSmithKline (GSK) CEO Andrew Witty would retire in 12 months, after leading the British pharmaceutical manufacturer through a series of changes since 2008 that had failed to ignite the share price, the company announced on Thursday.
Mr Witty, a 31-year company veteran, has been under fire from some investors in the past three years, as sales and profits have flagged, while some have questioned his focus on a consumer health business that ranges from headache pills to toothpaste.
His reputation was further tarnished by a damaging bribery scandal in China that landed GlaxoSmithKline with a record 3-billion yuan ($463m) fine in 2014.
On the plus side, Mr Witty has managed the company through a wave of drug patent expiries without resorting to a major acquisition, and the company is now on track to return to earnings growth this year.
His decision to retire at the end of March next year is not a huge surprise, since chairman Philip Hampton had already discussed the need for succession planning in meetings with some shareholders. But the departure comes amid continued debate over GlaxoSmithKline’s direction and investors may fear a period of limbo before a new CEO comes on board.
There have been calls from a minority of shareholders for a break-up of the group, with critics arguing its pharmaceuticals and consumer health units would do better as standalone businesses.
Mr Witty has conceded in the past that spinning off the consumer healthcare division could be an option, but he has argued this should not happen in the short term.
Deutsche Bank analyst Richard Parkes said while a new CEO might turn to acquisitions to bolster prescription drugs — a move that could be funded by a sale or spin-out of consumer operations — an evolution of the current strategy was more likely than major change.
A $20bn asset swap with Novartis, completed a year ago, which involved the exchange of cancer drugs for the Swiss group’s consumer health products and vaccines, was a centrepiece of Mr Witty’s time in charge.
The deal crystallised his idea of reducing exposure to premium-priced pharmaceuticals and increasing sales of over-the-counter products, as well as selling more lower-priced medicines in emerging markets.
Not all investors have been convinced by the diversification play, however, and GlaxoSmithKline shares have underperformed, returning an average 10% annually in the last five years, against 14% on average for the European pharmaceuticals sector. Recently, GlaxoSmithKline stock has done better, largely on its HIV/AIDS drug business, which the company had considered spinning off in an initial public offering, before deciding to retain it.
In explaining the decision to announce his retirement a year ahead of departure, Mr Witty said it was important that the board had sufficient time to conduct the search for his replacement.
"By doing so we will strongly position GSK to achieve the medium-term outlook set out to investors last year and deliver a return to core earnings growth in 2016," Witty said.
GSK said its board would consider both internal and external candidates for the role of new CEO. Executive search firms Egon Zehnder and Korn Ferry have been engaged to help with the appointment.
Internal candidates could include global pharmaceuticals head Abbas Hussain, leader of the consumer division Emma Walmsley, and manufacturing head Roger Connor, as well as finance chief Simon Dingemans, a former Goldman Sachs banker.
Externally, GlaxoSmithKline might try to snare a senior figure from a rival drug maker, such as Novartis’s respected pharma head David Epstein, or else look beyond the drugs sector to an executive with broader experience in consumer products.
Reuters
Andrew Witty. Picture: BLOOMBERG/CHRIS GOODNEY
LONDON — GlaxoSmithKline (GSK) CEO Andrew Witty would retire in 12 months, after leading the British pharmaceutical manufacturer through a series of changes since 2008 that had failed to ignite the share price, the company announced on Thursday.
Mr Witty, a 31-year company veteran, has been under fire from some investors in the past three years, as sales and profits have flagged, while some have questioned his focus on a consumer health business that ranges from headache pills to toothpaste.
His reputation was further tarnished by a damaging bribery scandal in China that landed GlaxoSmithKline with a record 3-billion yuan ($463m) fine in 2014.
On the plus side, Mr Witty has managed the company through a wave of drug patent expiries without resorting to a major acquisition, and the company is now on track to return to earnings growth this year.
His decision to retire at the end of March next year is not a huge surprise, since chairman Philip Hampton had already discussed the need for succession planning in meetings with some shareholders. But the departure comes amid continued debate over GlaxoSmithKline’s direction and investors may fear a period of limbo before a new CEO comes on board.
There have been calls from a minority of shareholders for a break-up of the group, with critics arguing its pharmaceuticals and consumer health units would do better as standalone businesses.
Mr Witty has conceded in the past that spinning off the consumer healthcare division could be an option, but he has argued this should not happen in the short term.
Deutsche Bank analyst Richard Parkes said while a new CEO might turn to acquisitions to bolster prescription drugs — a move that could be funded by a sale or spin-out of consumer operations — an evolution of the current strategy was more likely than major change.
A $20bn asset swap with Novartis, completed a year ago, which involved the exchange of cancer drugs for the Swiss group’s consumer health products and vaccines, was a centrepiece of Mr Witty’s time in charge.
The deal crystallised his idea of reducing exposure to premium-priced pharmaceuticals and increasing sales of over-the-counter products, as well as selling more lower-priced medicines in emerging markets.
Not all investors have been convinced by the diversification play, however, and GlaxoSmithKline shares have underperformed, returning an average 10% annually in the last five years, against 14% on average for the European pharmaceuticals sector. Recently, GlaxoSmithKline stock has done better, largely on its HIV/AIDS drug business, which the company had considered spinning off in an initial public offering, before deciding to retain it.
In explaining the decision to announce his retirement a year ahead of departure, Mr Witty said it was important that the board had sufficient time to conduct the search for his replacement.
"By doing so we will strongly position GSK to achieve the medium-term outlook set out to investors last year and deliver a return to core earnings growth in 2016," Witty said.
GSK said its board would consider both internal and external candidates for the role of new CEO. Executive search firms Egon Zehnder and Korn Ferry have been engaged to help with the appointment.
Internal candidates could include global pharmaceuticals head Abbas Hussain, leader of the consumer division Emma Walmsley, and manufacturing head Roger Connor, as well as finance chief Simon Dingemans, a former Goldman Sachs banker.
Externally, GlaxoSmithKline might try to snare a senior figure from a rival drug maker, such as Novartis’s respected pharma head David Epstein, or else look beyond the drugs sector to an executive with broader experience in consumer products.
Reuters
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