By Victor Kleinman, Managing Partner (Nosal Partners LLC) --
Ongoing and unrelenting change continues to impact the major Life Sciences sectors of global pharmaceutical, biotechnology, devices, and diagnostic companies. Today's Life Sciences companies face an environment where best-selling drugs introduced in the 1990s are losing patent protection, opening them up to generic competition. At the same time, many of these companies have not been able to develop new products quickly enough to continue their rapid growth, despite an aging population that demands a steady flow of breakthrough drugs and products. To be successful in the future, these companies need to manage individual product life cycles--not to mention their own operational efficiency--against a backdrop of other diverse challenges, such as ever-increasing regulatory oversight; evolving intellectual property concerns; changing methodologies in clinical development (adaptive clinical trials, for example); escalating marketing costs; and heightened merger and acquisition activity.
There is a strong need for high-performing leaders with the right blend of domain expertise and business acumen to deliver life saving/improving products to patients, while building corporate value in the face of these enormous challenges. The life sciences industry will not be in a position to capitalize on the unprecedented global demand for its products unless it grooms the next generation of leaders with the skills and abilities necessary for the rapidly approaching new business world.
What are those characteristics so necessary to maintain balance in today’s unstable executive ranks? In talking with senior management at Life Sciences companies, there are four key factors high-performing leaders have in common:
Flexibility. Best-in-class leaders are open-minded about the industry’s new environment and creative about addressing a broad array of challenges. Every day brings not only new scientific medical advances, but also changes in business models, channels of distribution, regulatory requirements and other hurdles to overcome. Senior leaders continually adapt to changing market conditions and quickly identify new opportunities to exploit. Senior leaders leverage their breadth of experience to be nimble and open-minded to flourish in this rapidly changing environment.
Focus. Successful leaders instill a culture of unequivocal focus on the company’s mission and goals. Whether a major global pharma created as a result of mergers, or a small diagnostic, device or biotech firm, leaders align the core competencies of their colleagues and subordinates to the mission of the company and provide an environment where people can achieve their full potential.
Finesse. C-level personnel are adroit at managing all the disparate parts of the business. He or she is as skillful in handling the science and R&D demands as the business realities. Leaders succeed not only because of their technical expertise, but also because they can create collaboration and a sense of purpose among groups of diverse professionals.
Frugality. Today’s executive is intellectual but practical and understands financial constraints, while indentifying inefficiencies. Those who can evaluate “make or buy” decisions—such as whether to outsource clinical trials or conduct them in house—and balance short-term versus long-term financial issues are best-positioned to get ahead.
Environment of Change
In what can be viewed as an understatement, Jean-Pierre Garnier, GlaxoSmithKline’s CEO before retiring in May 2008, told the Wall Street Journal that healthcare is a “rapidly changing environment.” The well-known perfect storm of trends—pricing pressures, reimbursement challenges, regulatory requirements, legal entanglements, inroads by generics, and declining R&D productivity—have increased the pharmaceutical industry’s costs enormously and reduced its revenue and profit potential.
This storm of negative consequences has dampened investors’ confidence and earnings and valuations have been hit hard. From December 2000 to February 2008, the top 15 companies in the industry lost roughly $850 billion in shareholder value, and the price of their shares fell from 32 times earnings, on average, to 13. Glaxo’s profit fell 14 percent in the first quarter of 2008.
Layoffs and mass firings of employees continue as companies slash budgets. Upwards of 50,000 layoffs were announced in 2007, according to one report. More than 7,000 more were announced in early 2008, according to the Journal.
Career progression has changed substantially in today’s life sciences industry. It’s no longer a place where one would join after college and spend a working lifetime moving up the ranks within the same company. The golden era of the 1980s through 2005 of high pay, generous benefits, job security and the opportunity to build wealth via stock options has passed.
The C-suite has not been immune. While 10 years ago a CEO might stay put for two or three decades, we are now seeing turnover taking place at an unprecedented pace. According to the Financial Times, nine of the top 12 pharma companies changed CEOs in 2005 through 2007.
They include Garnier, who turned over the top post to Andrew Witty; David Brennan replacing Tom McKillop as chief executive at AstraZeneca at the start of 2006; and Severin Schwan, who was named in July 2007 as the new CEO of Roche.
As the industry flattens and reshapes it has been predicted there will be fewer large companies due to mergers and acquisitions. Analyst Michael Steiner at RegentAtlantic Capital has forecast that more than 50,000 upper-middle and senior-level positions will be displaced as companies cut costs and increasingly outsource.
This creates a rich pool of candidates who may have a breadth of experiences in various functional areas. For instance, it’s not unusual for someone in licensing/business development to have come from a scientific role, individuals in clinical development to move into regulatory functions, etc. Increasingly, many aspiring leaders have served overseas as their employers realize the importance of global experience and geographic/cultural diversity. The trend over the past decade of high-performing leaders who have experience at major global companies, as well as at smaller entrepreneurial firms, is also providing for a rich, diverse field of candidates with functional skills and comfort with a variety of corporate cultures.
Those managers who have been proactive in diversifying their career experiences will be best-positioned to aim toward the C-suite. They know that narrow subject matter expertise is not enough, and know how to recognize and act on opportunities using broad judgment. Executing strategic direction is critical to success. Beyond mere experience in a linear process—discovery, clinical trials, approvals and marketing—they must have true enthusiasm for delivering results in a cross-functional, team-oriented environment.
Garnier has pointed out that a C-level position in pharmaceuticals is “not for the faint-hearted.” I would add the four Fs as outlined above.
Dedicate yourself to the company’s core mission and direct employees to reaching a specific goal — focus
Be creative, innovative and draw on broad experiences to stay competitive—flexibility
Balance the company’s short-term and long-term needs with its resources—frugality
Be skillful at matching the business model and the products and services to the marketplace— finesse
In today’s volatile environment, where previous operating models may not be up to mitigating the dangers posed by forces reshaping the industry, recruiting, retaining and developing top-tier leaders is critical to a company’s success.
Those individuals who master the above-mentioned attributes—and the companies that provide a platform for these individuals to deliver those leadership skills—will be positioned to flourish personally and corporately in these, the most challenging of times.
Victor Kleinman is Managing Partner for the Global Life Sciences Practice at Nosal Partners LLC, where he also serves as Managing Partner for the firm’s Jupiter, Florida, office. He can be reached at (561) 741-4454 or email@example.com