In his best-selling 2001 business book, Good to Great, consultant Jim Collins set out to discover what made some companies
so much more successful than others. He researched more than 1,400 corporations, looking for examples of dramatic long-term
He settled on 11 that had been achieving average results, but after a particular point became great, turning in cumulative
stock returns of at least three times the market-and sustained that level of performance for at least 15 years. The list included
Walgreens, Kimberly-Clark, Circuit City, and one pharma company: Abbott Laboratories.
"When George Cain became CEO of Abbott Laboratories [in 1958]," Collins wrote, "it sat in the bottom quartile of the pharmaceutical
industry, a drowsy enterprise that had lived for years off its cash cow, erythromycin. Cain didn't have an inspiring personality
to galvanize the company, but he had something much more powerful: inspired standards. He could not stand mediocrity in any
form and was utterly intolerant of anyone who would accept the idea that good is good enough."
Cain replaced many of the company's top managers-including several of his own relatives. He made profits per employee a key
metric, as it is to this day. And he began a process that reshaped Abbott.
"It was under George Cain that we acquired Ross Laboratories, what is now the Ross nutritional division, in 1964," explains
Cathy Babington, vice-president for investor relations/public affairs. "Under his tenure, we established the joint venture
with Dainippon Pharmaceutical that led to the strong presence we have in Japan today. We began to get into radiopharmaceuticals,
which led to the creation of the diagnostics division. He took what had been a pure pharma and some hospital supply business
and made it a much broader-based healthcare company. As those investments evolved, they created a lot of the momentum that
we saw in the seventies, eighties, and nineties." By 1974, according to Jim Collins' standards, Abbott was great.
But greatness isn't necessarily permanent. By 1999, when the current CEO Miles White took over, the company was showing signs
of slowing down. For years, 15 percent annual growth in shareholder value had been a kind of company mantra. Now growth was
down to the low double digits. There were questions about sustainability, about the pipeline, about product mix. It was time
to see if Abbott could once again make the transition.
During White's tenure, science has become a core focus. The crucial acquisition of BASF's Knoll Pharmaceuticals has brought
new research tools, new personnel with sophisticated skills in discovery and biotech manufacturing, and a blockbuster product
in the form of Humira (adalimumab) a monoclonal antibody for rheumatoid arthritis, which is expected to exceed sales of $250
million this year. Meanwhile, through a process of acquisitions and divestitures, the company has been sculpting itself in
the spirit of what George Cain started building 40 years ago.
There have been glitches along the way, most notably ongoing problems getting Abbott's Lake County, Illinois, diagnostics
plant in line with FDA manufacturing standards. But the shape of the Abbott of the new century is starting to become clear.
And with that new shape comes a new mantra: sustainability.
A Tactical Environment
Miles White didn't intend to work in pharmaceuticals. In 1984, with an MBA from Stanford and a stint at McKinsey & Co. under
his belt, he was looking for opportunities in Silicon Valley. He interviewed at Abbott as a favor to a mentor and ended up
in just the kind of job he'd been hoping for-manager of national account sales in the domestic part of the diagnostics division,
with eight people reporting to him and $80 million in sales responsibility.
What he discovered was a big change from McKinsey, with its Harvard and Wharton grads and its near obsession with critical
"This was a very tactical environment," says White. "You could tell they brought very few people into middle management positions
from the outside. The people who succeeded had to fit the cultural norm of having come into an entry-level position and stayed
a long time. They had to have 'carried a bag.'"
After a series of promotions that moved him up through several different functions on the life sciences side of the business,
including marketing, R&D, and the business side of the instruments business, in 1998 White was informed that he was in competition
with two other execs to be CEO.
"The biggest void in my knowledge was the pharmaceutical business, which was close to half the sales and profits of the corporation,"
says White. "And
I wasn't going to learn that over the course of that horse race, however long it lasted, because I had no responsibility for
anything on the pharmaceutical side." He studied that part of the company on his own, and nine months later, when he was selected
as CEO, he had a plan in mind-one that focused heavily on the problems he saw there.
At the time, Abbott's mainstay drug was Biaxin (clarithromycin), an anti-infective. But the category posed several problems:
It was crowded and getting more so. The business was highly seasonal, so the October-to-April flu season had a major impact
on first- and second-quarter revenues. And the season wasn't what it had been.
A key move for Miles White (r) was bringing in Jeffrey Leiden (l) to head global pharmaceuticals.
"My first four years in this job, the flu season has declined steadily every year," says White. "As a cornerstone product
for a pharma business, I wanted something a lot more stable."
More important, Abbott's R&D effort was fragmented and underfunded. The company did research in 13 clinical areas and spent
about $600 million on pharmaceutical R&D-at a time when most experts thought that a company the size of Abbott needed to invest
$1 billion to $2 billion a year to have a sustainable pipeline.
Pipeline issues became acute right around the time White took the helm. A few months before he took over, Abbott's Norvir
(ritonavir), an antiviral, developed problems with polymorphism. An advanced generation protease inhibitor, Kaletra (lopinavir
and ritonavir), was in the works, but in the short run, Norvir's capsule form had to be pulled from the market, though the
liquid remained available. Also, three months before he took over, Abbokinase (urokinase), a thrombolytic, was pulled from
the market because of manufacturing concerns. A few months later, Hytrin (terazosin), a treatment for benign prostatic hyperplasia
and another Abbott mainstay, went generic. Together, Abbokinase and Hytrin added up to a $700 million sales hit.
"If you looked at the mainstay products," says White, "Biaxin was going to slow considerably, Norvir was having a challenge,
Hytrin was going generic, Abbokinase came off the market. Depakote [divalproex] was stable. And there wasn't much in the pipeline
behind them except Kaletra for a long time. We were spread too thin over too many categories. It didn't look competitive.
We needed to make sure the R&D engine that was going to develop new medicines over time was a good engine. That became priority