Andrew Witty, the CEO of almost 10 years and who has spent more than 30 years in the company, has announced his intention to part with GlaxoSmithKline (GSK) while being in the process of transforming the company’s strategic direction.
Under Witty, GSK had noticeably divided its focus from the traditional drug and therapeutic development to the consumer health business. The pharmaceutical segment involves high margin products, although they take up much research and development costs as well as time. Low margin consumer products on the other hand are easier to produce and generate a lot of volume with a ready market in developing countries.
This strategy was developed in the 2015 deal with Novartis AG, which saw GSK swap some of its cancer drugs for Novartis’ low-margin vaccines. The deal was seen to be a novelty amidst the large mergers that had been a recent norm in the industry.
Despite efforts in the diversification of its product line, share price has not reacted favourable points as profits have gone down in the last three years.
Other controversies which also mar Witty’s reign, in 2014 GSK was fined 3 billion Yuan for a bribery scandal in China. There had also been allegations of corruptions from the Middle East. It had also settled with the US government for $3 billion for illegal drug marketing. Witty decided to regain the company’s reputation and correct the setbacks by restructuring incentive systems and discontinuing financial support to doctors who prescribe their drugs.
However, Witty will also be leaving good things in memory, as under him, GSK was able to successfully survive a series of patent expiries.
Even if Witty announced his retirement a long 12 months ahead it could be said that followers of the company had expected the occasion earlier. Witty said that it was done to allow the board enough time to search for a new CEO and not leave the company in a state of confusion.
But minority shareholders had long been questioning Witty’s direction for the company. Neil Woodford, a UK investor, had wanted to split the pharmaceuticals from the consumer health division as he believed that the individual segments could pull in a greater value than GSK’s current stock price. Richard Marwood of Axa Investments also stated that no pharmaceutical company should be organized in the way GSK is. Chairman Philip Hampton had already brought up succession planning in previous meetings with stockholders.
However the departing CEO maintains that the board supports the strategy and the structure of the group, saying that diversification is good hedge to volatility and that no breakup with Novartis would likely occur in the next two years.
Deutsche Bank analysts agree that the company will probably continue in its current direction and avoid major changes.
Hampton is in charge of finding Witty’s successor. Names floating around are Glaxo’s own employees Abbas Hussain, Emma Walmsley and Roger Connor. External candidates are Simon Dingemans, a former Goldman Sachs banker, and David Epstein, Novartis’ pharmaceutical head.