Magazine Article | April 15, 2011

The Pharma Veteran

Source: Life Science Leader

By Dan Schell, Editorial Director, Life Science Leader

Blockbusters, megamergers, government investigations — Fred Hassan has experienced them all during his nearly 40-year career. In this exclusive interview, he gives some advice to the next generation of pharma executives.

“It’s like a terror that overcomes you when you are facing a situation like that.”

Those were some of the first words Fred Hassan said to me during my interview with him on Feb. 28. If you know of Hassan — and most of you probably do — you could probably take a guess at what business scenario he was recalling.

During his nearly 40-year career in the pharma industry, no position he held was more riddled with challenges than his stint as CEO of Schering-Plough from 2003 to 2009. It’s a well-known story. Hassan, who had earned a reputation at Sandoz, Wyeth, and Pharmacia as the guy who could turn around troubled divisions or companies, walked into a situation at Schering-Plough that — at first — went from bad to worse, with everything from plummeting revenues to congressional investigations.

But, that’s not the situation he was describing to me.

Instead, his comment was in reference to the movie “The King’s Speech,” which had won an Oscar the night before our interview and was a film he had mentioned previously to me as having a profound effect on him. The movie chronicles how King George VI of Britain overcame his stuttering problem, an affliction Hassan suffered from severely as a child. “It’s [stuttering] not completely gone for me, but fortunately, when I’m not thinking about it, I do OK,” he said.

Obviously, Hassan is doing more than OK, and at age 65, he shows no signs of slowing down. Since helping coordinate the Schering-Plough/Merck merger in 2009, he has been working at private equity firm Warburg Pincus, where he is now a managing director. He also serves as chairman of the board for Bausch & Lomb and sits on the boards of Avon and TimeWarner.

The Importance Of “A” Players
When I first met Hassan, he was the keynote speaker at the R&D Leadership Summit in Miami in February. His presentation had a lot of what you might expect from an industry veteran — the current state of the industry, the challenges, and his recommendations for some next steps. For the latter, I was surprised at the amount of what I considered common sense advice he was offering, yet from the number of nodding heads in the room, it seemed many felt he was onto something. For instance, during his presentation and during our conversations he spoke a lot about the importance of putting the right people in the right jobs. He gave me the example of choosing what he calls “A” players for country managers. “The market share and long-term profits in a country are directly related to the quality of the pharma company’s country manager,” he said. “Many pharma CEOs underestimate the importance of having ‘A’ players, or those kinds of people who can interact with the local authorities, add value to the global enterprise, and be strong leaders in the country manager role. Strong leaders are in much shorter supply than good managers. Getting all country managers to be ‘A’ players should become a systemic way of working at a global pharma company.”

He also discussed the importance of hiring people for their attitude as well as competencies and creativity. In an industry that needs to reinvent itself, he called for more empowerment and accountability for all employees. He stressed eliminating bureaucracy and the old way of working in “silos.” These kinds of axioms flowed effortlessly from him as he spoke, and on the surface, it may have seemed like he was pandering to the audience. Yet, when I spoke with him later for this article, he gave me multiple anecdotes that explained the genesis of some of his core business beliefs.

For instance, he spoke fondly of an early business lesson he learned from Fred Meyer, the man who hired him at Sandoz in 1972. In the mid-1960s, while a 19-year-old Hassan was still studying chemical engineering in London, he worked in a chemical engineering plant in its labs and with the spray drier. Then, after completing his MBA, he landed a job at Sandoz corporate headquarters where he quickly found himself meeting with executives at the top levels and talking business strategies. It seemed high-ranking, corporate positions were in his near future. “But, then Fred told me I could really benefit from ‘getting my hands dirty’ and learning the business from the ground up,” Hassan recalled. “He suggested I go to a smaller shop and take a lower-level position, which I did by joining Dorsey Labs in Lincoln, NE. My Sandoz colleagues thought I was crazy, but it allowed me to see and interact firsthand with the people inventing, developing, manufacturing, and selling products. It was a totally different experience — and one that I found invaluable — compared to the corporate environment I had been in previously.”

The Look Of The New Life Sciences CEO
“Understanding the basics” is what Hassan calls that kind of insight into all the functions of an organization, and it’s a trait he feels is a prerequisite to becoming a successful life science CEO today. After all, the role of the CEO position, in general, has changed significantly over the years, especially since the Enron scandal and the rise of regulations such as the Sarbanes-Oxley Act. “People expect CEOs to be closer to the business than they used to be,” Hassan said. “And of course, a science background is always useful for a life science CEO since it increases your self-confidence regarding ‘understanding the basics,’ and for making better judgments about the quality of your R&D leadership.”

The subject of R&D and how it is often viewed in life sciences organizations is a topic Hassan insists needs to be addressed by today’s pharma CEOs. R&D can’t be viewed anymore as just another division. Instead, it should be considered what he calls a “central value creator” and a long-term business driver. “Unlike other businesses where there may be a lot of continuity among various products, in pharmaceuticals, you literally lose 90% of your product once you lose the patent, and patents have limited lives. So, you have to renew your product portfolio, on average, every 10 years.”

Essentially, regarding R&D, he mentioned what many of you are probably already struggling with. Figure out ways to kill clinical studies faster and earlier, perhaps even using biomarkers instead of time-consuming and expensive studies. Also, avoid the “blockbuster trap.” “If I were going to start a new pharma company today, it would be in specialty pharma, like for rare diseases. A $500 million specialist drug can generate more EBIT than a $15 billion mass-marketed drug,” Hassan said. Building what he refers to as a “development machine” is also critical. He explains, “The science of drug development is quite different from the science of drug discovery. I think a lot of smaller companies get started because of someone’s great idea at a university or a lab, but developing that idea or drug — doing the clinical research, working with regulatory authorities, getting submissions ready, developing partnerships with outsourcing companies such as CROs — that’s all very difficult and very different from working in a lab or at a university.”

Dealing With Difficult Decisions
Hassan’s advice on topics such as building your experience base or fostering innovation in your R&D department was interesting, but I knew he had more to offer. In particular, considering just the challenges he experienced at Schering-Plough, I knew he would have some great insight into dealing with difficult decisions. After all, while there, he had to do things like cut dividends, eliminate bonuses, and lay off employees after the Organon acquisition.

Regarding layoffs, he did list the following as some wrong ways (that he has seen through the years) to deal with this difficult decision.

Relying on only those people who get appointed to each management layer of the combined company to pick the next layer’s staff. There is a natural human tendency to pick those one knows as opposed to who really may be the best for a position. By implementing some form of top-down oversight (e.g. having the CEO vet candidates, too), you can reduce this tribalism.

Not keeping an eye on the employees who drive the top line and the R&D pipeline. Most mergers disappoint because the combined top line slows down and the combined pipeline doesn’t produce enough for the new mass that has been created by the merger.

Not fully using the opportunity to upgrade the cultures of the combined company. Often, the culture of the larger legacy company becomes the culture of the new combined entity.

As he mentioned before, today’s CEOs need to be more engaged with all areas of the business than ever before. And, especially during times of upheaval, the CEO needs to be the team leader. In his previous positions, Hassan would frequently communicate with employees on the “front lines” via site visits, small group conversations, and email messages. “I think one of my special strengths is to reach out to the frontline managers and listen to this group, and then align and energize them,” he explained. “The frontline managers then drive the motivation and morale of those who do the work. CEOs don’t make turnarounds happen; frontline managers do. CEOs only set the strategy.”

The Industry Needs To Change
One could wonder why Hassan still works full time and serves on three boards. Many men his age and with his success have comfortably retired to the golf course by now. And, surely it’s not for the money.

Personally, I believe it’s the fact that the industry that helped make him who he is and has consumed his career, is, in essence … broken. And he wants to help fix it. That’s why he gets involved with things like an “informal think tank” targeted toward modernizing the FDA that has been assembled by Dr. Andrew von Eschenbach, the former commissioner of the FDA. Indeed, increased regulatory oversight is one change to this industry that is commonly cited as an area that needs fixing. So, too, is the push for more innovation. In his past position as PhRMA chairman, these were some of the key issues he addressed and which he continues to address in the speeches he now gives throughout the year.

The fact is, as he explained, pharma innovation thrives in countries where there is a strong intellectual property and regulatory framework and especially where there is a very strong science-based and predictable regulatory agency. It also thrives in countries with high science literacy. “In the United States, the industry, the patient groups, and the government should be working harder to protect pharmaceutical innovation in this country,” he said. “We do things that help patients live better and live longer. We create good scientific knowledge that helps research for the future, and we create high-quality jobs. We have to find ways to convince decision makers that this is an industry that deserves a lot of attention. We’ve made some progress getting this message across, but we’ve got a long way to go.”

Stepping Outside Of Life Sciences
One of the most personal — and surprising — things Hassan shared with me was that he regrets having spent almost his entire career in pharma. He explained that the time he devoted in recent years to nonpharma boards and activities led to this desire for a more diversified career. That nonphamra board experience also taught him that to truly understand any company, an executive should always learn the business model, the industry dynamics, the competitive position, and the megatrends. “You should then be able to answer questions like, ‘What strategy will make us different?’ ‘What will make the strategy happen?’ ‘How will competitors react?’ ‘How will we deal with competitors’ reactions?’ and ‘What will success look like?’”

Hassan’s days of being a pharma CEO may be over, but budding industry executives as well as grizzled veterans can still learn a thing or two from the guy who started out with a stutter and grew into one of his generation’s most successful life science executives.

What one of Fred Hassan's favorite business books?

“An uncommon book I read in the late 1970s was called, The Basel Marriage: History of the Ciba-Geigy Merger. This was one of the big megamergers in our industry — between Ciba and Geigy in 1971. I learned from this book that combining cultures can be very difficult even when two giant companies (Ciba and Geigy) come together in the same small town (Basel, Switzerland). I also learned that real integration — beyond the mechanics — takes much longer than what people commonly believe.”