Coming Up Trumps

Four and a half years ago, Schering-Plough was struggling to deal with declining sales and earnings as well as legal and regulatory challenges. Desperately in need of new direction, it found its saviour in Fred Hassan. Julia Puppe spoke with the turnaround ace about playing a poor hand well.

In the 1990s, Schering-Plough was proud and profitable thanks to Claritin. At its peak, the allergy drug generated $3.2 billion in sales, which in 2001 was almost a third of the company’s total revenues. The bubble burst when blockbuster Claritin lost patent protection, and Schering-Plough found itself facing a $1.6 billion drop in Claritin sales, a Securities and Exchange Commission investigation, two federal probes into alleged Medicaid fraud, and a $500 million FDA fine for breaching good manufacturing practices.

The company’s response? Find someone to save the sinking ship – and quick. Fred Hassan was given a complete carte blanche when he took over as Schering-Plough’s new CEO in April 2003. “It was a company under severe stress,” he recalls. “There were legal problems, there were compliance problems, there were severe sales growth problems, the market shares of all the leading brands were declining, and then there were severe morale problems and a sense of despair. So it was a very difficult situation.”

The 61-year-old has taken on difficult assignments before. Sitting down in his office in Kenilworth, New Jersey, Hassan shares his work philosophy with refreshing honesty. “You have to move out of your comfort zone. Once you’re outside it, you can be more of a change leader,” he says, emanating confidence.

Leaving the comfort zone
With a BS degree in chemical engineering from the Imperial College of Science and Technology at the University of London, Hassan moved out to Lincoln, Nebraska, to join Sandoz Pharmaceuticals (now Novartis) in 1974. “It was a chance to get my hands on the operations, on the business, and I found that very, very valuable. And then I took on this very difficult job, which was turning around a Sandoz subsidiary in Pakistan that was about to be closed. I turned it around so dramatically that they made me the head of Sandoz US, which was a very difficult job at the time. So they kept challenging me with difficult things, which I found very energizing,” Hassan recalls. “I think the lesson is that if you take on the leadership of a tough situation in a remote location you learn a lot about all aspects of the business very quickly. The experience of being a ‘mini-CEO’ early in your career is a large asset.”

In 1995, Wyeth called in Hassan to deal with its internal merger with Ayerst. For decades the two pharmaceutical labs had operated largely independently of each other, even though they both belonged to the American Home Products Corporation. In 1987, it was announced that the two units would be merged by the end of the year to cut costs, avoid duplication and lessen time-to-market. “It was a difficult job; the merger wasn’t going well. And for the first time Wyeth reached outside their senior management ranks. They brought in an outsider to deal with the problem.”

Hassan executed the internal merger successfully and his reputation as a transformational leader continued to grow. When Swedish Pharmacia experienced difficulties merging with American Upjohn, whom did they call? That’s right. Hassan became CEO of joined Pharmacia & Upjohn in May 1997. “These have been very important challenges, and, of course, in the process I learned a lot. But Schering-Plough was the most difficult challenge I’ve ever faced in my career. I am very, very proud that we managed to get the company turned around.”

It only took Hassan two working days in the new job to launch his six- to eight-year ‘action agenda’, an initiative to battle the woes the Kenilworth-based company was dealing with. So far, the initiative has been a success, and Hassan’s ability to get people to do something differently and with enthusiasm has played a major role in the transformation process.

A people-oriented approach
His strength, he says, has been in setting a direction and a certain cultural expectation for Schering-Plough employees so they can trust each other more. “Once people have a framework they are more productive. Then you can challenge them to rise to their highest levels in terms of their own capabilities. We also expect a high degree of teamwork from our management colleagues because that makes it easier for them to work with each other and trust each other, and it helps them create a cultural signal to the rest of the company.”

Hassan’s approach is people-oriented, including those that are right at the front lines. His management style, he says, is situational. “I can be tough when I have to be, and I can be very laissez faire when I feel that that is the way it should be. Most of the time I’m in a participative zone, where I either let the team decide and execute on their own, or I ask the team to develop their recommendations and then we together decide what needs to get done, and then the team goes forward and executes. Or in a few cases I ask the team to give me their recommendations; I have a lot of discussions with the team, and then I decide.”

Hassan’s approach is also a transparent and honest one. “When we started Schering-Plough’s transformation, we began with a forthright analysis. We said we had to stabilize the company, which obviously meant that at that time things were not very stable. We also said we had to repair the company, which means that there were things that were broken. We said we had to turn around the business, and that included not only turning around the cash drain that was threatening the company but also turning around the prospects for the brands, for the market shares, and more importantly the internal mindset, so people could see hope, strength and success in the future.”

Transformation focus
Since Hassan launched his strategic action agenda in the spring of 2003, the company has successfully completed the Stabilize, Repair and Turnaround Phases. In October 2006, the start of the Build the Base phase was announced. “We said we would be doing two things: honing our competitive edge of people, products and processes, and extending our core to new patients, new customers and new markets. One example of this is our hospital-based sales force that we have established in the US. Here, our sales representatives focus on such medicines as the antibiotic Avelox, which we license from Bayer, and the antifungal Nofaxil, a Schering-Plough discovery that gained US approval in September 2006. In terms of new markets, we are expanding our presence in China, South Korea, Brazil, Russia and Central and Eastern Europe. And we are gaining new approvals, such as in Japan for both Temodal and Zetia.”

In R&D, the focus has been on advancing compounds in the pipeline, strengthening development capabilities and resources, and continuing to look for opportunities outside the company. “By doing all these things well – and successfully completing the acquisition and integration of Organon BioSciences – we will have a much stronger company, better able to deliver high performance for the long term,” Hassan points out.

Organon BioSciences, he explains, will be an excellent strategic, scientific and financial fit with Schering-Plough, building on the company’s growing strength in primary care and giving it immediate access to central nervous system (CNS) and women’s health care products. The acquisition of the biopharmaceutical company also significantly expands Schering-Plough’s late-stage pipeline by adding five compounds in phase III development and a number of promising projects in phase II development.

Schering-Plough has clearly moved from survive to thrive mode, with continuity playing a major role in this development. “The one thing I hear from Schering-Plough’s people again and again is that they are glad that it’s the same strategic vision and the same strategic direction year after year. When the strategy is clear then execution doesn’t need a lot of debate, a lot of consensus development; we’re just going to get on with it.”

Customer-centered product flow
Key to the revitalization of Schering-Plough has been Hassan’s steps to break down the walls between R&D and commercial teams, along with other barriers that stand in the way of innovation. For instance, the company installed a new process and mindset called Customer-Centered Product Flow (CCPF). Before Hassan’s arrival, Schering-Plough had spent many years unsuccessfully attempting to gain FDA approval for Asmanex, its innovative new treatment for asthma. “With CCPF, we kicked down the silos. We got the scientists talking directly to their marketing colleagues. We focused everyone on getting the job done with shared accountability.”

CCPF finally got Schering-Plough approval for Asmanex in 2005. “We were able to get it through the FDA without a lot of problems because they saw this time that we were serious and that we were absolutely committed to doing it the right way. And then we were ready on the marketplace side as well, and we surprised people with the success of a product that actually gained approval much later than when it should’ve come out. Advair showed up on the market while Asmanex was waiting to get approved, so the market moved towards the combination products in the meantime. But in spite of that delay we were able to carve out a good market share for Asmanex.”

Collaborations
Schering-Plough’s star products last year were Zetia and Vytorin, sold in a joint venture with Merck, which helped the company to complete two consecutive years of strong growth. Another program that will be partnered with Merck is loratadine/montelukast. This combination product, which is a nonsedating antihistamine with a leukotriene inhibitor, has the potential to be a valuable option for people with allergies who also are looking for relief from nasal congestion. “As such, it will help strengthen our growing line of respiratory therapies, an area where Schering-Plough has historically been a leader.”

What are the main benefits resulting from the Merck collaboration? “One long-term benefit is that it has demonstrated to ourselves how important alliance management is for us,” Hassan replies. “In fact, it’s a separate discipline from licensing and business development. We know that in this industry co-promotion, co-invention, co-development and co-marketing are things that are going to happen more and more in the future, and we want to develop the capability to be one of the best companies in alliance management.”

The joint venture also demonstrates to the outside world that Schering-Plough can be a successful partner. Other projects support the image, such as the collaboration with Novartis to develop and commercialize a novel once-daily inhaled fixed-dose combination therapy for the treatment of asthma and chronic obstructive pulmonary disease (COPD). The goal is to develop a new therapy that would combine the therapeutic benefits of the once daily long- and fast-acting Beta2-agonist QAB149 (indacaterol) of Novartis and Schering-Plough’s once-daily oral corticosteroid mometasone (Asmanex).

“Another important collaboration is our venture with Johnson & Johnson,” Hassan adds. “We have a biotechnology collaboration with them that concerns a product called Remicade. We have been a strong growth company with Remicade overseas, and because Johnson & Johnson directly shares profits in that product there is a sense of winning together, which is what we have tried to generate with many of our partners. And Johnson & Johnson would definitely tell you that they are very pleased with the success of Remicade in overseas markets managed by Schering-Plough.”

The company is now looking into a humanized version of Remicade that could potentially be injected subcutaneously. And there are other exciting projects in Schering-Plough’s pipeline. The most exciting one, Hassan says, is the thrombin receptor antagonist (TRA) project, now in phase III. “It does look exciting based on the phase II data that surfaced last winter. It surprised a lot of people. Not only did it show very good safety results, which is really what we were looking at at that time, we also noticed some very interesting efficacy in the model, and more importantly, dose-dependent efficacy. And it’s that encouragement that gave us the desire to move forward very quickly with two massive trials involving a total of 30,000 patients.”

The investigational antiplatelet TRA is being developed by Schering-Plough for the prevention and treatment of atherothrombotic events in patients with acute coronary syndrome and in those with prior myocardial infarction or stroke, as well as in patients with existing peripheral arterial disease. “TRA has a different mode of action from Plavix and it’s also not like aspirin; it’s in a new class. Because of its mode of action we believe that it causes less bleeding, but it still further helps toward preventing blood clots. So initially, the trials will investigate TRA on top of Plavix and aspirin. Ultimately, we might find very important use of TRA as primary therapy.”

Competition is good
Strong year-over-year growth and an expanding pipeline is propelling Schering-Plough ever closer to pharma’s top 10, and the acquisition of Organon BioSciences – which almost doubles Schering-Plough’s phase III pipeline – increases the company’s value substantially. In sharing the same prospects as the big players, however, Schering-Plough also faces the same challenges. Although the company’s products are patent protected well into the next decade, Schering-Plough sees competition on practically every one of its key brands. “But we’ve always said to ourselves that competition is good. It makes us better, it makes us sharper,” says Hassan.

The real challenge, he believes, is R&D productivity. “Company after company is having great difficulty moving projects in late phases to the marketplace, and even when they get to the marketplace, some companies are announcing product withdrawals or black box labeling. This is something that was not foreseen 15 years ago. In fact, at that time there was a lot of hope that there would be less attrition in phase II and III with the modern scientific tools, and that the industry would somehow see far more products than we’re seeing right now.”

Instead, Hassan states, the cost of R&D is growing double digits in most companies while the number of new molecular entities that are approved is more or less flat compared to 20 years ago. “It is really creating an enormous cost stress for our business and unless we deal with it in some way it is going to create problems for our industry.”

The sluggish R&D productivity is not entirely the fault of the pharmaceutical industry, Hassan concedes. “We still have business partners out there in the regulatory field and people in society that should have a more balanced view of risk and benefit. We as an industry need to do a better job at convincing people that patients need new medicines. We are still the best hope in bringing them the new medicines. If they support this industry, take a more reasonable attitude to risk and allow new products to come on the market, then patients are ultimately going to benefit. We have to do a better job getting that message across.”

Getting the message across is something Hassan is good at. With the right amount of enthusiasm and authority, and a disarming portion of honesty, he will lead Schering-Plough into the Breakout Phase. “We now have an exciting journey of transformation ahead of us with our planned combination with Organon BioSciences. We’ll become stronger in human pharmaceuticals and a world leader in animal health. What is especially exciting is the combined strength of our science platform, and the strength we will have in a rich phase III pipeline.”

Schering-Plough just recorded its 12th consecutive quarter of double-digit adjusted sales growth. With the upcoming acquisition of Organon BioSciences, the company will have more than 10 significant projects in phase III. R&D, Hassan emphasizes, is the lifeblood of the pharmaceutical industry, and the power of a combined innovation engine will strengthen Schering-Plough’s position for the long term. “We have set for our people the aspiration of becoming the finest company in our global industry. So we have plenty to occupy our energy now, working to achieving that goal.” And being known as the turnaround ace, no one doubts that he will.

Schering-Plough’s Action Agenda

• Phase I: Stabilize
  Hassan: “We must halt erosion and rebuild confidence. We must get on top of the immediate legal and compliance issues.”
• Phase II: Repair
  Hassan: “We will embed a behavior of business integrity and compliance. We will reach out to our stakeholders to listen, learn and take actions to reduce our risk exposure and fix problems. We also will ask our colleagues to get on board with our new culture and behaviors.”
• Phase III: Turnaround
  Hassan: “This is the time when we begin making progress on selling more of our products, reducing costs and improving product flow, and establishing the basics of strategy, structure and longer-term action programs. This is also when we begin building a superior top team. My experience is that when you build a superior, aligned top management team, high performance follows.”
• Phase IV: Build the Base
  Hassan: “We must solidify our foundation for long-term high performance. My goal here would be to try to get several product growth engines into place so that we are not reliant on any single large product.”
• Phase V: Breakout
  Hassan: “This is the time when we move from ‘good’ to ‘best.’ This is also the time when we identify the actions that will bring transformational change – and execute them!

Prior to joining Schering-Plough in April 2003, Fred Hassan was Chairman and Chief Executive Officer of Pharmacia Corporation. He joined the former Pharmacia & Upjohn in May 1997 as chief executive officer and was elected to the Board of Directors. Previously, Hassan was executive vice president of Wyeth, formerly known as American Home Products, with responsibility for its pharmaceutical and medical products business. He was elected to Wyeth’s Board of Directors in 1995. Earlier in his career, Hassan spent 17 years with Sandoz Pharmaceuticals (now Novartis) and headed its US pharmaceuticals business.