The Drugs Aren't Working Yet for GlaxoSmithKline

(Bloomberg Opinion) -- GlaxoSmithKline Plc’s chairman is stepping aside after about four years in the job. Philip Hampton has overseen plenty of change in that brief time. Despite all the activity, the British drugmaker’s core problems persist. A longed-for turnaround is still an aspiration. For CEO and Hampton appointee Emma Walmsley, a change at the top should bring fresh pressure to deliver.

Hampton came aboard at a time of mounting investor discontent with the old regime of chairman Chris Gent and CEO Andrew Witty. The company had failed to produce new blockbuster drugs that could replace revenue from respiratory drug Advair as it lost patent protection. It was compensating shareholders for disappointment in the lab by paying a dividend it could scarcely afford.

The elevation of Walmsley, the then divisional CEO of the group’s consumer business, was controversial given that many thought Glaxo needed a scientist and an outsider. She called out the core problem, which wasn’t hard to do: The company needed to be more commercial in selecting which scientific projects to back and which to ditch. 

The Drugs Aren't Working Yet for GlaxoSmithKline

A new framework for Glaxo’s allocation of capital has put drug discovery to the fore, while a “science committee” was established, providing some reassurance that the board knows what it's doing, even with a chairman, CEO and CFO who have either an arts or social science education.

The big strategic move was December’s deal to create a joint venture with Pfizer Inc. in consumer health, with a view to a demerger of the unit to leave a pure drug company. That took opportunistic advantage of the U.S. pharma giant’s failure to sell the business earlier in the year. Glaxo had previously bought out the partner in its own consumer division, Novartis AG, although that was pretty much an inevitability given that the Swiss group had the right to exit and was always expected to exercise it.

The job of chairing a British blue-chip is often occupied for much longer than this, if less energetically. The U.K. corporate governance code tolerates tenures of up to a decade. Glaxo suggests that Hampton is leaving while the consumer demerger is in its early stages to allow his successor to own the project from the outset. But it wouldn’t have been out of the ordinary for Hampton to stay till the separation was done. Either he doesn’t have the appetite to carry on, or the board thought this was a convenient moment for a refresh.

His succession provides another reset with shareholders. The role could be filled this time by someone both with a science background and experience of running a company. Shares in domestic rival AstraZeneca Plc have performed far better than Glaxo’s in recent years as investors gain confidence in its ability to deliver breakthrough treatments. New blockbuster drugs have remained elusive for Walmsley. After so much change in people and strategy, Glaxo should be moving to implementation and delivery. The CEO will have no excuses if she doesn’t show results. Walmsley has time on her side. But a new chair will scrutinize her performance with fresh objectivity.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

©2019 Bloomberg L.P.