March 17, 2016 / 7:55 AM / a year ago

GlaxoSmithKline's CEO Witty to bow out in March 2017

5 Min Read

GlaxoSmithKline Chief Executive Andrew Witty speaks at the Global Investment Conference in London July 26, 2012.Neil Hall

LONDON (Reuters) - GlaxoSmithKline said on Thursday its Chief Executive Andrew Witty would retire in 12 months after leading the British drugmaker through a series of changes since 2008 that have failed to ignite the share price.

Witty, a 31-year company veteran, has been under pressure in the past three years as sales and profits have flagged, while some investors have questioned his focus on a consumer health business that ranges from headache pills to toothpaste.

His reputation was further tarnished by a damaging bribery scandal in China that landed GSK with a record 3 billion yuan ($463 million) fine in 2014.

On the plus side, Witty has managed GSK through a wave of drug patent expiries without resorting to a major acquisition and the company is now on track to return to earnings growth this year.

His decision to retire at the end of March 2017 is not a huge surprise, since Chairman Philip Hampton had already discussed the need for succession planning in meetings with shareholders.

But the departure comes at a time of continued debate over the direction of GSK and investors may fear a period of limbo before a new CEO comes on board.

There have been calls from a minority of shareholders, including respected UK fund manager Neil Woodford, for a break-up of the group, with critics arguing its pharmaceuticals and consumer health units would do better as standalone businesses.

Woodford said an outsider with a fresh perspective should now be appointed as Witty's replacement.

Witty, 51, has conceded in the past that spinning off the consumer healthcare division could be an option but he has argued this should not happen in the short term.

He told Reuters on Thursday he remained convinced consumer products offered a valuable counterbalance to pharmaceuticals and insisted his retirement was unrelated to break-up demands.

"Absolutely you should not make that linkage. I can tell you the board is unanimously committed to the strategy and the structure of the group," he said.

Deutsche Bank analyst Richard Parkes said that while a new CEO might turn to acquisitions to bolster GSK's prescription drugs - a move that could be funded by a sale or spin out of consumer operations - an evolution of the current strategy was more likely than major change.

A $20 billion asset swap with Novartis, completed a year ago, which involved the exchange of cancer drugs for the Swiss group’s consumer health products and vaccines, was a centre-piece of Witty's time in charge.

The deal crystallized his idea of reducing exposure to premium-priced pharmaceuticals and increasing sales of over-the-counter products, as well as selling more lower-priced medicines in emerging markets.

Stock Underperformance

Not all investors have been convinced by the diversification play, however, and GSK shares have underperformed, returning 87 percent since he took over in May 2008 against 164 percent on average for the European pharmaceuticals sector.

Recently, GSK stock has done better, largely on the back of its HIV drug business, which the company had considered spinning off in an initial public offering before deciding to retain it.

GSK said its board would consider both internal and external candidates for the role of new CEO. Executive search firms Egon Zehnder and Korn Ferry have been engaged to help with the appointment.

Internal candidates could include GSK's global pharmaceuticals head Abbas Hussain, leader of the consumer division Emma Walmsley and manufacturing head Roger Connor, as well as finance chief Simon Dingemans, a former Goldman Sachs banker.

Externally, GSK might try to snare a senior figure from a rival drugmaker, such as Novartis' respected pharma head David Epstein, or else look beyond the drugs sector to an executive with broader experience in consumer products.

Chairman Hampton also announced plans for "board refreshment" at the drugmaker, with Deryck Maughan, Stephanie Burns, Daniel Podolsky and Hans Wijers not standing for re-election at the annual meeting in May.

Additional reporting by Sarah Young; Editing by Mark Potter and Elaine Hardcastle

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