Rethinking a Schering-Plough turnaround
A month ago to the day, I mentioned Schering-Plough in a negative light. I said that the company wasn't going to do well, but I'm beginning to re-think my original thoughts, after hearing more about CEO Fred Hassan. It's always fun to hate on CEOs — they take the blame for everything, sort of the like the POTUS — even if something isn't necessarily their fault. They inherit the deficiencies of the companies they run when they takeover.
In any event, I like Hassan's steady-as-she-goes approach as outlined in the WSJ. I'm also a fan of executives who put ethics ahead of profits. As Hassan doesn't have a medical background, I was a bit surprised to read about some of the things he's done.
Rather than cut research and development spending and lay off scientists, he says he went against the advice of his executives and cut the dividend. The move violated something of a taboo: In the cash-rich drug industry, shareholders had come to expect sizable quarterly payouts. Schering-Plough had rasied its dividend 18 times since 1986.
[...]
At the sales force's annual meeting, Mr. Hassan surprised those who remained by telling them, "If you ever have to choose between doing what's right and making a sale, walk away from the sale."
That last statement got Hassan a standing ovation. Apparently not all drug reps are bottom-sucking scum like some people seem to think. ( <3 ) Hassan also cut compensation for drug reps (max bonus = 25%), and got rid of bonuses entirely for all managers (himself included), and sold 2 of SP's 4 jets.
Hassan's company is doing quite well also: after staggering 2004 losses ($1 billion) and an SEC probe (guilty), Schering-Plough is posting some profitable quarters. What remains to be seen is how well investors will tolerate Hassan's emphasis on research and overall company health as opposed to quarterly profits. Will they stick around for 6-8 years? If I were an investor in Schering-Plough, I would. I might hold off buying more shares, because I think investors will start to jump ship, but it'll take a little while. Turning around what is primarily an R&D-based business is more difficult than simply pumping out more widgets at a lower price.
I like Hassan's style. I'd like to see more of it. More R&D, less emphasis on sales and more emphasis on ethics. No doubt SP's got some rough times ahead of them, but I think their strategy will pay off in the end. Now all they've got to do is plug the gaping hole in their drug pipeline, something that Hassan has clearly placed emphasis on by opting to keep the company's R&D sections largely intact. They could also buy a biotech firm to freshen their pipeline. Buying IP rather than creating it has been pretty popular in recent months.
[tags]Medicine, pharmacy, ethics, Schering-Plough, CEOs[/tags]
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[...] Looks like BMS will need another Fred Hassan to settle things down. [...]
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