The Friendly Persuasion — An Interview with Fred Hassan

While it is widely known that the biopharmaceutical industry is confronting disruptive changes to a business model that dates back well into the last century, less is said about the generational shift taking place among managers at every level of today's pharma organization. Knowledge transfer—the handing down of substantive skills and process awareness, combined with individual learned intuition—has never been more important to successfully charting a new path forward. One key source of insights for this next generation of c-suite climbers is "Reinvent: A Leader's Playbook for Serial Success," written by former Schering-Plough CEO Fred Hassan, whose long career as the driver of no less than six well executed business turnarounds was punctuated by three successive slots on the cover of our magazine. His book's advice is written in the active tense, and is neatly categorized into the three elements of "Me"—authentic, purposeful, and connected—and "We"—leading, raising expectations through example, and winning, not just once, but often. As part of our planning for this year's latest crop of Emerging Pharma Leaders, Pharm Exec's Editor-in-Chief William Looney met last month with Hassan in his new role as non-executive chairman of Avon Products Co., whose own customer-centric business model might just be one fragrant shoot for reviving Big Pharma's tired brand. The following is an edited version of our discussion.

John Halpern/Photographer

Looney: Based on your 30 years of experience in biopharmaceuticals, do you believe that the ebb and flow of the business cycle is the driver of ultimate success—how much does leadership intervention count?

Hassan: Industries and companies are not fixed objects but living, breathing organisms that must continuously adapt to survive. All industries evolve; the biopharmaceuticals business is no exception. The classical model of the lifecycle of a business runs from the embryonic stage, to the growth spurt, to maturing competition, and then finally to commoditization. Most observers today see our industry at the competition stage. We are not yet a commoditized business, but growth has faded and we are certainly no longer in an embryonic state.

In my view, the peak era for growth started to fade after the year 2000, coinciding with the fading of the small molecule therapy platform focused on serving a mass market of patients with chronic diseases. Much of this segment of the business is headed toward outright commoditization. What we fail to realize, however, is the very process of decline opens new corridors of growth. Science is going to succeed once again in providing new and lucrative markets for those companies that recognize opportunity and seize it first. I recall how, in the 1980s, monoclonal antibodies were praised for the science but panned for their commercial potential—too many potential side-effects and too hard to manufacture, it was said. But industry found ways to surmount these hurdles, resulting in a flood of new breakthrough products, from Rituxan and Remicade to Humira and Enbrel. That success has spurred more competition, and a new cycle of growth. Entirely new product segments, like targeted medicines with companion diagnostics, will take the industry in different directions. Shaping and directing change in a way that creates new opportunities depends entirely on the human element—a strong leader, by definition, is never a mere captive of the business cycle.

Successful leadership depends on the larger context in which it is exercised. Can you identify some of the external challenges that confront today's CEO—and how they might be different than 10 or 15 years ago?

A key skill required of today's CEO is securing first-mover leadership in these new corridors of growth. The CEO and his team must have the strategic vision to look where others have not. Doing that in large organizations, where there is no danger in simply upholding the status quo, requires a high tolerance for the discomfort zone and for risk. That tolerance for risk has to be passed down the ranks. Because if it was true in the past, it is truer now: no single person has the capabilities to pursue a vision that will transform the business. A CEO must surround himself with people whose talents compensate for his or her own weaknesses. To find those people, you have to start by knowing who you are, and who you are not. It is harder than it sounds: self-awareness is a character trait that can fall into disuse after you have made it to the top. For example, many CEOs today don't know what they don't know about the economics of drug reimbursement. The value of medicine equation is very important in winning prompt access to the market. So it pays to keep that source of expertise close at hand.

Your book spends little time on the topic of creating a winning strategic vision. Is this because strategy is hard to teach? Is it because there are no set lessons: every set of circumstances a company faces is unique?

I chose to focus on executing around a strategy. Implementation is where most companies and their leaders fail, even when the strategy is appropriate. Nevertheless, strategy is vital. A good strategy builds a line of thought that punctuates good decisions. If I write another book, it will be geared toward strategy, which I define as a structured exercise ­designed to help a company play in the right places and deploy resources so it can win. Good teams that leave nothing off the table in terms of frankness are critical to a strong strategy. Building such a team, where the strengths and weaknesses of each member combine to form a well-balanced whole, is probably the biggest challenge facing a new CEO today. Individual hubris is still the number one reason why CEOs fail.

When you get to that place where you have a strong team in hand, the group should be guided by three actions: analyze, test, and act. I first had the opportunity to apply this approach when I took over as CEO of the failing merger between Pharmacia and Upjohn in 1997. The combined business was mired not only in internal fights among different groups, but also there was an impasse around competing strategies. Upjohn, a leader in primary care, had just lost exclusivity for its key product, Xanax, while Pharmacia was convinced the future lay in specialty drugs. The team I established was purposely balanced around both contrasting views, forcing each side to learn to think differently. One of the first things we did was to take a Pharmacia specialty drug—Detrol, prescribed for a very narrow urinary incontinence indication—and expanded its positioning to serve a much larger potential treatment population, for what we called the "overactive bladder" market. In other words, we took a Pharmacia therapeutic innovation and harnessed it to Upjohn's marketing expertise in primary care, resulting in the combined company's first blockbuster. There was a big risk involved here, because we had to move from the "analysis"—where we could only hypothesize the market potential—to the "test," which required substantial up-front investments in expanding the primary care field force to be able to sell the repositioned Detrol.

The positive result we got from leveraging two apparently contradictory capabilities to score a convincing market win gave our team confidence to pursue the third action, to move forward. We did that with Monsanto, where we able to acquire the rights to Celebrex, which was the first Cox 2 product in the arthritis and pain market. We had the expanded field force already in place to hit the ground running with Celebrex, which became our second blockbuster.

What was distinctive about these examples is the reliance we put on testing and acting. Strategists tend to over-analyze, which can force people to focus on the wrong questions and lead to decisions that are overly complex, resulting in a muddled mess of execution. Too much analysis becomes an end in itself; it means that people aren't making decisions. On the other hand, I am suspicious of the CEO who relies too much on intuition. That often becomes an excuse not to seek out the expertise of other colleagues. The notion of the CEO as a sole strategist is the ultimate anachronism. The group mindset, and the positive energy it generates, is critical to everything drug companies want to accomplish today.

How do you foster that sense of esprit at the top? How do you spread its benefits throughout the entire organization?

The most important task of a CEO is to build a management team that pulses with the force multiplier of collective energy. This is an intangible, almost spiritual asset. It cannot be achieved through an organization chart, divided into boxes that say "this is what you do." At this level, functional responsibilities are really beside the point. What matters instead is the dynamic energy that comes from contributions as a group, where the CFO is not there just to provide accounting advice but has something to say about reputation management as well. The strategy is richer because it is grounded in diversity. This is a point that many experts in organization management have missed.

Has company "culture" become a cliché? Is an effective business strategy possible without CEO leadership in building out the roots of a distinctive culture, one that can be understood by every employee?

Companies do have distinctive cultures. Awareness of this is vital to CEO success in executing around strategy. In all the corporate turnarounds I have been involved in, changing the culture played a huge role. A positive culture attracts talent and serves as a motivator of superior group performance. Unfortunately, the tendency in recent years has been to treat culture as a "soft" topic, one that can be safely relegated to the human resources function. This is a mistake. Today's most effective CEOs consider their HR representative a full partner in business strategy. But your HR leader has to be someone who understands the workforce beyond the "c suite" and can promote a culture that is geared to helping every individual win. Culture must be communicated as something positive and jargon-free. Too often, it is mistakenly applied as part of a PR exercise, filled with empty messaging. People will apply themselves if they believe in what you, as CEO, are saying. Yet most companies are falling short, on that score. Surveys show that more than half of the workers in corporate America are disengaged, with little regard or understanding of where management seems to be taking them, and many workers don't feel free to speak up. This festering alienation is a drain on initiative and leaves a lot of spare capacity sitting on the table; when companies address it and fix it, productivity rates go up considerably.

Is the human resources function ready for an overhaul to place it higher in the "c suite" pecking order?

It is rare to find in any CEO today a background that has exposed him or her to the HR function. That is a pity. The emphasis in HR today is very passive: recruiting talent, calculating benefits, and providing information to employees. What is really needed is a function that leads at the right hand of the CEO in shaping a productive, positive culture, assessing talent [not just finding it], building succession plans at every stage of the decision-making chain, and finding ways to engage and make colleagues feel valued for being part of an amazing organization, poised to profit from the future. Big Pharma needs to pay even more attention to this skill set than other industries because we are a talent driven industry. Instead, we often let patent driven product exclusivity cycles make us more complacent than we should be. That attitude must change because keeping top talent in place is going to take more effort in the future. The best people have more options and the younger generation no longer believes in lifetime employment.

Moving beyond organizational dynamics like culture, what in your experience are the characteristics that determine individual success in pharma today?

Nothing has changed. Attitude is key. I am often asked if my background growing up in Pakistan and studying in the United Kingdom helped me succeed in the United States. My answer is only partially—what really mattered is that, in moving from a very distinctive culture like Pakistan to the West, I was forced to work outside my comfort zone. I had to adapt on the fly rather than just move along at cruising speed. This had an impact on my attitude toward work. At periodic stages of my career, I was always ready to try something different. I had a built in corrective from my life experiences that prevented me from assuming that something could not be done, just because I was not familiar with it. Attitude is also about being positive. Over the years, I have seen that people who simply point out problems without suggesting a solution rarely gain traction. No matter how dire the circumstances, your personal brand is burnished when you stay constructive and avoid tearing others down.

What insights about our industry have you uncovered in your current role as non-executive Chairman of Avon Products? Is it true that consumer goods companies have a much better grasp of what the customer wants?

As a heavily regulated industry, pharmaceuticals are characterized by a strong process discipline. Getting the details right is the pre-condition for our license to operate. Companies like Avon are more focused on a continuing brand identity as the guarantor of a strong market position. In pharmaceuticals the right to exclusivity tends to make that a given; once a patent expires, brand identity tends to fade due to the intense generic competition. We can learn from Avon how valuable a good branding strategy is to stretching out the lifecycle of a product and keeping our customers loyal and engaged. Avon has also much to teach us about building share in the emerging country markets, which it treats with a distinct attitude and where it has been active for decades. For new medicines, the United States will continue to dominate, but the BRIC countries and others are going to be critical in giving a second wind to our mature brands. These markets are also sources of reverse innovation and thus a good way to keep tabs on future competition. For these reasons, when I was CEO of Schering-Plough, I was directly involved in concurring with the selection of almost all our country managers in the emerging regions.

Finally, Avon has taught me to look at the field force in a new way. All their sales people are independent vendors and the company looks at them as their first line of customers—you must win their hearts to succeed in selling to the masses. In our industry, sales people are paid mainly through a base salary, plus a bonus usually weighted against the performance of others in the group. It is interesting how the mindset changes when you treat each rep as accountable and trusted ambassadors for the brand. If you look at them as the first line of customers, their results in the marketplace will be quickened and their feedback link to marketing will be sharper.

What's needed to invigorate the drug pipelines of the major pharma companies?

There is no single answer and in many ways it depends on the imponderables of organization dynamics. In the late '80s, I was at Sandoz (now Novartis) when oncology was our next gleam in the eye after our successful reinvention into immunology with the launch of the transplantation drug Cyclosporia. Novartis has now succeeded in creating a successful franchise in oncology over a 20-year period. From the beginning, there was a commitment to working in small groups around specific projects based on a clear medical need and potentially enriched populations from genetic science and biomarkers. They also mix people very easily, so that there is less disconnect between the researchers and commercial development teams. The premise has always been to lead with the science; if the science is good, the market will follow. The Novartis story suggests you can build a big business around small opportunities, without having to chase after the premise that every success means a blockbuster. Small bets can add up, and spread through multiple indications.

Much has been written about the barriers to innovation in big Pharma, but one I have not heard is mentioned in your book: "forestalling victimhood." What does that mean?

In the large R&D cultures that still characterize the industry today, there is a cultural signal to play defense rather than strive for a positive outcome. Job security in these R&D organizations is better assured if fewer risks are taken. Managements have to stop the productivity drain where people think less about innovation and more about keeping their job. People must be taught through example that you can be an innovation leader and also a strong matrix player, and be rewarded for seeking out that area of common ground, working as a catalyst rather than a critic. Again, small groups can help drive this mindset better than more bureaucracy. Scientific leaders able to instill a positive sense of purpose are a prized commodity. They are especially needed now as the R&D enterprise adjusts to a long period of transition toward new modalities such as personalized medicine.

There are two contrasting futures for the industry. The first is that aging demographics combined with strong science will require more medicines and thus keep revenues and profits high. The second is that the industry has lost control of the pricing and value equation to payers and thus faces a decline through relentless commoditization. Where do you stand on this?

Payer power is the big issue right now. However, I am optimistic that the industry has the answer to this challenge—new and better drugs. Even in those therapeutic categories subject to commoditization, such as cholesterol, hypertension, and diabetes, the gravity of the public health threat means that society requires continuous improvement in treatments just to keep up. And this doesn't even address the conditions where there are still no effective treatments at all, led by Alzheimer's and Parkinson's. There is no other industry right now where society has that level of unmet need.

The other response to the payer community is the value of medicines in terms of the overall cost burden from healthcare. In most countries, drugs constitute a relatively small share of total costs, well behind hospital charges, physician fees, and long-term care. What is most exciting is how much of the new medicines innovations coming on stream in the next 10 years will actually contribute to reducing costs through less reliance on these other health services. Personalized medicine is finally beginning to show its mettle through precise targeting of drugs around an individual's unique genetic profile, for a superior therapeutic effect that prolongs life and is cost effective through lower rates of therapy failure and institutionalization. More important, there are major spin offs from this revolution in the biology of disease and the processes that underpin it: R&D becomes more cost efficient in linking a compound to a specific disease target; the long haul of drug registration becomes faster and more focused, because it is easier to identify and assess the population most likely to benefit from a NME (new molecular entity); payers are positioned to obtain better evidence of real-world outcomes; and the patient experience is individualized rather than subject to the hit or miss randomization of a population effect.

This last point is very important. The reason why payers have the upper hand is that they can treat us as manufacturers of products for big populations; for many in this population, there is no clear evidence that our products even work as intended. As long as that mindset continues, payers can commoditize us. However, if we succeed in making this a purchase that carries a measurable value unique to each patient, the conversation changes. With the increased information about the clinical effectiveness of our drugs, the initiative moves back to the patient's interest in receiving the most appropriate therapy for his or her clinical condition, rather than just what a formulary says. I think we are getting to that point now, where payers will be forced to give ground.

Do you believe that the new science and personalized delivery will give industry a greater measure of pricing freedom?

What I am saying is that we will have more pricing discretion when the momentum shifts back to the informed patient. At the same time, we need to remain sensible in our pricing behavior. We all can cite examples of egregious pricing decisions that tainted the industry's reputation. Oncology products, in particular, have to be priced strictly in line with the value they deliver. I am a strong believer in the market as providing the necessary discipline. When someone overprices, the market will make a noise, providers will shut you out, and then you have to go back and adjust it—with an extra levy imposed on your reputation.

You were involved in a total of six major corporate turnarounds in your career. Looking back, what was the one skill that mattered the most to your success? Alternatively, in which areas did you feel you were deficient?

The trait that made the most difference was figuring out the "how" behind the "what." The strategy could be set; what was hard is making it all happen. What I learned is to sequence actions so that one would reinforce the other to move things forward. For example, if I concluded that culture change had to drive the strategy, then I would take deliberate steps to demonstrate the need for change and to convince people they were ready for it. Every statement had to be reinforced with action—repeatedly and in a way that everyone from the receptionist on up could understand. Yes, there are some negatives in a turnaround but I have always been careful to put the emphasis on what success down the road would look like. Getting the foundation laid and seeded was something I did well in every restructuring plan. Once the green shoots came—the carefully staged "early wins"—it actually became easier to move the flywheel and launch a chain reaction that would eventually start humming on its own, because the sparks came not from me, but the entire company.

With regard to what I might have done better, the most important was a failure to move early to correct mistakes I made about people being right for the job. I was sometimes slow to act. The worst players in any turnaround situation are the passive aggressive personalities. I could have done a better job in rooting them out quickly, because passive aggressive behavior is probably the biggest single drain on culture change.

To conclude, what advice do you have for younger managers in building a career in the midst of a business model that is morphing in so many unpredictable ways?

You will find most of your peers have the right credentials, beginning with a good education and exposure to others with a similarly competitive nature. But what is often lacking—and is certainly missing from business school curricula—is learning how to be more self-aware and connected; do you understand how people may view you differently than you do yourself? This is a trait that develops as you grow older in life, when the scars start to show. If younger people can learn to drink from that well of self-awareness earlier, they will do better in coping with the ups and downs that accompany any successful career. When I was recruiting people, I rated "EQ" as important as IQ. In fact, I developed at Schering-Plough what I call the "knockout" assessment system: if a candidate scored perfectly on all the surface attributes, like big titles and a prestigious degree, he or she still failed the cut if we uncovered just one instance of hubris, or rudeness to staff, refusing to work in teams, or taking energy out of the system through self-promotion. Great organizations only survive when we work just as hard for others as we do for ourselves. It requires traits of human character that I believe are permanent and immutable.

William Looney is Pharm Exec's Editor. He can be reached at wlooney@advanstar.com.