Succinctly Shire: CEO Flemming Ornskov

August 1, 2013
William Looney
Pharmaceutical Executive

Volume 0, Issue 0

Shire's new CEO has a simple strategy for success: Set the pace on specialty medicines, spread the positive buzz and momentum of a growth stock, and seize the opportunity to innovate.

Shire is the standout in the branded industry's lost decade of slowing growth, climbing steadily up the revenue ranks with a strategic focus on the acquisition of specialty medicines, many for orphan indications, which command high margins in a privileged competitive space marked by friendly patients, faster FDA approvals and extended periods of exclusivity. But success in pharma has a notably short lifecycle, so the pressure is on to keep the good times rolling, especially in light of the company's recent transition to new leadership.

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Shire is also a perennial takeover target, but with a market capitalization of close to $20 billion its a prize that won't come cheap. Feeding the speculation is Shire's solid late stage pipeline, which features new entries in undertreated conditions like dry eye disease and major depressive disorder.

To take a closer look forward, Pharm Exec met last month for a Q&A with new company CEO Flemming Ornskov, an academically–trained physician with a background in pediatrics who has also cut a wide swath through Big Pharma, having served previously in key management roles at Bayer, Bausch & Lomb, Merck, and Novartis. Ornskov recently unveiled a three-year strategy plan that places major bets on undertreated specialty segments in ophthalmology, ratchets up the commitment to leadership in rare diseases, and reinforces Shire's vaunted "just do it" culture through a faster, more agile decision-making structure. The plan positions Shire to take maximum ­advantage of opportunities to innovate by effectively forcing the in-house R&D and business development functions to compete in bringing the best assets forward to commercialization. It was also clear from the discussion that a few things about Shire will not change: a determination to stay independent and to avoid the Big Pharma contagion of bureaucracy and bloat. Yes, it's still true: when a Shire CEO shows up for a talk, there is no entourage. —William Looney, Editor-in-Chief

PE: Under your predecessor Angus Russell, Shire established itself as a high-growth specialty business with a distinctive culture, a key element of which was to avoid the perceived gridlock of Big Pharma. Since taking up the CEO post on April 30, you have been strong on the same mark, with a new strategic plan to guide the company through its next phase of growth. What are the plan's key elements and how do you assess the response of the investment community?

Ornskov: Our strategy has three components. The first is a commitment to leadership in specialty medicines. The second is to maintain our company's status as a growth stock, with a significant inventory of assets to propel us forward. The third is to become even more innovative in all that we do as an organization, but especially through our expanding in-house capabilities on research as well as Shire's traditional strengths in tapping opportunities through business development and licensing. This latter, dual capability is unique to Shire as a mid-sized company in the pharma space. It is an attribute I intend to emphasize going forward.

Another, overarching aspect of the strategy is the imperative I see to make Shire a truly international organization. We are at the stage now where we need to think seriously about building a stake in markets like China and increasing our presence in Japan. Shire is already in Latin America but we can certainly do more in that region. In Europe, we are well established but there are areas where our footprint can be augmented.

As far as the investor community is concerned, I think the consensus is the strategy is forward looking and prudent: it will keep us lean as we grow and is appropriately balanced between opportunity and risk. Like everything in this business, time—and the market—will tell.

PE: Shire set a target several years ago to raise sales outside the United States and Europe so that the two regions would account for no more than 50 percent and 25 percent of global revenues, respectively, in 2015. Are you on track to achieve that goal?

Ornskov: At present, 70 percent of our revenues come from the United States, with the remaining 30 percent ex-US, including Europe. Our aim is to grow the ex-US business significantly. Nevertheless, I think for us to anticipate going too far down that road is unrealistic in so short a period of time. I see the United States as the most attractive pharmaceutical market in the world. It is a high-value geography, with a pricing and reimbursement climate that compares favorably to other countries. We are not going to be "hyper-focused" on the United States, but the reality is that for the foreseeable future it will remain our principal market.

PE: There is a perception that Shire has grown through a commitment to "search" rather than research, with products derived from vigorous licensing activity rather than in-house R&D. Does the new strategy propose a change in that approach?

Ornskov: I have experience working in large and small pharmaceutical companies. The lesson I derive from both cultures is that medicines innovation is a difficult quest. There is no fixed formula; in many ways the quest for innovation must be opportunistic. Our approach at Shire is to strive for a balance between in-house opportunities and externally sourced innovation. The key thing we are doing differently is to raise the bar on decision-making by effectively asking our business development and research groups to compete in bringing the best assets forward, whatever the source. As part of that, I've created two senior executive-level committees, which I chair, that will simplify, coordinate, and prioritize decision-making around our entire product portfolio. The first is focused on executing around marketing and sales targets for Shire's current in-line products. The second concentrates on opportunities from all assets in the pipeline, whether these come from internal sources, through partnerships with affiliated institutions, or other external channels.

Shire’s Pipeline: A Closer Look

The two committees are designed to work together so that as a new asset comes forward, we can quickly assess how it may impact the balance within the full portfolio, particularly in regard to critical resource allocation decisions we must make in moving compounds into costly Phase III development. An example is our latest acquisition of SARcode Bioscience and its key asset, lifitegrast, an ophthalmologic drug for dry eye disease—a condition affecting 25 million US patients—which is now in Phase III trials. Once the deal was struck, the committees pondered the question: how will this promising asset, in a big therapeutic segment, change prioritization around our existing pipeline, particularly those compounds requiring more resources at the late stage of development? Should we de-commission some work to make room for investments that might augment or grow this high-potential acquisition? The answer is, yes, we did, by scrapping a previous decision to initiate a Phase III trial on an internal compound we were working on to address negative symptom schizophrenia.

The example shows that it is natural and healthy to have competition between these two sources of innovation—internal and external—because it makes the deployment of resources around the portfolio much more efficient. Execution of our strategy depends on this new decision-making structure I have put in place.

PE: How do you intend to deploy Shire's in-house R&D capabilities going forward?

Ornskov: Angus Russell actually did an outstanding job in building up Shire's in-house R&D capabilities. In the field of rare diseases, we are second to none in the work our labs are doing in pre- and mid-stage clinical research. We are improving at the late-stage level as well. I have every confidence that Shire today is able to deliver to the market internally-sourced NCEs for rare diseases. Outside of rare diseases, our preference is to acquire later stage assets, develop them, and win registration. It is also important to note that Shire presently spends about 18 percent of revenues on R&D, or close to $1 billion a year. Hence it's time to change that old image of Shire.

PE: In what ways does the new organization seek to capitalize on these next stages of growth for Shire?

Ornskov: Shire has been posting growth rates above the market norm for many years. To manage that growth, we created a number of business units with a keen focus on the therapeutic area and full responsibility for all our activities there. In due course we had a BU incorporating all the rare disease business of our acquired company, HGT; followed by specialty medicines; behavioral science; and later another BU on regenerative medicine. Looking ahead, however, and taking into account the aggressive expansion plans in a number of new therapeutic areas, I concluded it was counterproductive to continue on this path. There was a scalability issue, with multiple duplicative, mainly service, positions for each BU leading to a lot of bureaucratic overhang, not to mention the risk of silo thinking. In fact, during my early visits as CEO to the Shire marketing and sales force, I got feedback that organizational rigidity was starting to constrict the information flow and slow decisions.

So I took a step back, and devised a new organizational structure whose principal feature is to consolidate all administrative, non-commercial functions into a single, corporate, service-oriented unit. The plan integrates formerly separate R&D activities into one organization; business development forms another. Then we sharpened the focus around five reconstituted BUs: rare diseases, consisting of the HGT products we inherited from the acquisition; neuroscience [formerly behavioral science]; gastrointestinal; regenerative medicine; and internal medicine, which mainly covers "heritage" assets that are nearing the end of the product cycle. Building on the SARcode Bioscience acquisition, we are likely to create a new BU on ophthalmology. Hematology could be another future BU for us.

Creating a central, overarching locus for prioritized decision-making across the portfolio are the two executive steering committees, on the pipeline and in-line businesses. I am chairing both committees for now. This is where the buck stops.

Most important, I took heed of what the sales force told me about the danger of letting internal intrigue push us away from the customer. The feedback told me we had to move immediately to remove all barriers between Shire and the customer. That's precisely what we did: the organization is much flatter than it was before. There is a quick way to get the attention of senior management.

PE: Why did you abandon the name of your acquired company, HGT, and turn it into a BU now called rare diseases?

Ornskov: We thought the designation of HGT was too confining—not every rare disease is driven entirely by genetics. The criteria should be as broad as possible. I also like to have names that resonate with customers and patients; I don't think the new name of the BU requires much explanation.

PE: Has the strategy plan been shaped by your previous management experience in line operations in big companies like Merck, Novartis, and Bayer?

Ornskov: Definitely. My years at Bayer gave me a strong grounding in how to manage a BU from the perspective of the customer. I followed the same strategy at Bayer, where I helped set the foundation for its current very strong pipeline through this mixing of internal, in-house R&D and external sourcing through licensing and M&A. Bayer has benefited immensely from its unrelenting customer focus: never strong in ophthalmology, it has broken new ground with the partnership it forged with Regeneron on Eylea, for wet age-related macular degeneration; with Onyx, and Nexavar, it has made itself a major player in oncology.

The conclusion I draw is that if a BU is closely aligned to the customer base, you can quickly pick up the pace and become a player in segments that historically have been tangential to your core. Whether the asset comes from your own lab or is externally sourced means very little. In fact, allowing both units to compete to identify and develop that asset raises the bar on performance throughout the entire organization. This Bayer model has propelled it from being known mainly for a 19th century product, aspirin, to a company that today has one of the most innovative drug pipelines in the industry. It's not just luck—it's the core focus on learning everything about your customer. This is what is going to drive Shire to the next level as well.

PE: Shire has a reputation for being very patient centric, where it leverages extensive outreach to disease groups as well as analytics around data detection, trial design, and indication profiling to secure timely registration and launch. Do you intend to build on this as a driver of competitive differentiation?

Ornskov: Everyone at Shire has a story about patients—relating to them is part of our culture. In some ways, it comes with the turf: you have to be patient centric if you are active in attention deficit hyperactivity disorder [ADHD], or in extremely rare diseases, where our sales force gets to know many of the patients eligible to treat. I want to bolster this sentiment and keep it as part of our own DNA.

From a strictly commercial standpoint, patients are important but in many ways the key link is to the physician. This is certainly true in our clinical trial work, where physicians are the critical intermediary in the therapeutic segments where we are strong, especially rare diseases. The close interactivity with clinicians is one factor behind our acquisition of SARcode Biosciences. The company had a strong reputation for conducting excellent clinical trials based on real-world input from the most knowledgeable practicing physicians. Again, I cite it: they were very customer-focused. As a physician myself, I could see their capacity to make the connection, from the business to the physician to the patient.

PE: How are you incorporating the new emphasis on payer value in your growth blueprint for Shire?

Ornskov: Value is the entry point for all discussions on P&R today. It is harder to obtain access to the market without a careful consideration of cost-effectiveness, impact on overall health outcomes, and analysis of the various tradeoffs important to stakeholders. With prices for many rare disease drugs so high, transparency is a given. At the same time, every negotiation is different. The rarer the disease—and we have an estimated 7,000 such diseases where there are no available treatments—the more important it is to get the value story right. Ultimately, that story has to be persuasive for the patient: does our medicine have a significant impact on his or her quality of life? The industry has to demonstrate that its therapies are life altering. Shire has many products that do precisely that, and the requirement on us is to furnish the evidence base to prove it. We have to do it through better clinical trials but also in the many additional real-life observational studies we are committing to as part of the registration process and through negotiations with the HTA authorities and payers.

PE: As a European, what is your perspective on the growing reliance of governments on cost-effectiveness measures to control access of new medicines to patients? Do the criteria being used in these evaluation systems adequately incorporate the special social value characteristics of drugs for rare diseases, where Shire is strong?

Ornskov: I am in regular contact with governments and payer representatives in Europe. All countries in the region are grappling with serious challenges to the sustainability of national health systems. There is no choice but to prioritize. It's fair for them to seek to obtain maximum value for what they can spend. Our industry has to accept and work within that harsh budgetary assessment. HTA is now part of the access process; it's another barrier to market entry that, through rigorous ­attention to evidence, we can address and surmount. The onus is on Shire and all companies to provide the documentation needed to help payers make the best judgment. Where Shire wants to play is at the highest level of innovation. Our goal is to be recognized as a company that specializes in innovation and thus deserves a real opportunity to show a benefit to the health system. It is true that for some of the very small patient populations we serve, it is difficult to make our arguments purely on the basis of cost-effectiveness. We want to open payers to a broader discussion around issues like how to adapt insurance programs to serve rare disease patients as well as solidarity and ethical concerns, which are very important in Europe. To varying degrees, we are succeeding in that.

PE: Do you believe that the quality adjusted life year [QALY] calculus used by the UK National Institute for Health and Care Excellence [NICE] adequately measures the contributions of a biologic drug for a limited rare disease population versus a small molecule drug for a chronic condition designed for a much larger population?

Ornskov: QALY calculations form only part of what is a clinical guidance that also covers other means for establishing whether a drug is cost effective or not. This is a complex decision-making process, as NICE officials have acknowledged many times. That said, I don't think it is helpful to set arbitrary frameworks that conclude if a cost per QALY is over a certain amount, then the drug won't be made available through the NHS. A QALY should never stand alone. By itself it certainly doesn't serve as an adequate measure of value in rare diseases.

PE: Many companies today are positioning themselves not as pill manufacturers but as "total health solutions" providers, with a heavy services and outcomes delivery component. Is this part of the Shire strategy?

Ornskov: Shire, for now, is going to stay focused on developing innovative medicines that address unmet medical needs. This is our competitive advantage. We have a decade-long track record in delivering strong growth and returns to shareholders. A singular commitment to developing and marketing innovative drugs is the best way to continue that performance. Anything else would be dilutive.

PE: What plans do you have for the Shire sales force? Are there changes underway in how you intend to introduce and sell Shire medicines?

Ornskov: The sales function is facing significant changes as information technologies create new ways to interact with healthcare professionals. Overall, the climate has become more hostile to the traditional methods in which companies communicate to this group. At Shire, the sales force will remain central to our marketing and information strategies. What we are paying more attention to is the quality of our relationships: Do we have the best educated sales reps? Is there a better balance we can strike between a purely promotional message and more medically aligned and driven opportunities that further enrich these contacts? How can we supplement direct personal contact with the other channels that technology now offers us?

What matters most to me is keeping our eye on the feedback loop we get from prescribing physicians. We must ensure that their exposure to Shire reps is of sufficient quality and meaning to them that they will willingly allocate the time to see us. This feedback is going to be reflected in our compensation system as well as the scale and scope of our investments in the Shire sales force going forward. And feedback is not something limited to our people in sales. Instead, receiving feedback is a cultural imperative for the entire organization. It's the only way to remain attuned to the marketplace. If we aren't rated by our customers as ethical, compliant, and a consistent provider of high service, then this new strategy we have in place will not succeed.

PE: As a newcomer to the c-suite, what differentiates the role of CEO from that of a line manager?

Ornskov: As CEO, I must relate to a much wider circle of constituencies. For example, I have multiple outside investors that represent pension funds and depend on our returns to keep their plans healthy and solvent. There is also the responsibility you have to patients, customers, payers and regulators. A successful CEO must be outward looking. He or she must balance these multiple external interests with actions that drive things forward from the inside.

PE: In addition to being CEO, you are a physician. Are you finding this an asset as you adjust to your new role?

Ornskov: It has always been an asset. Throughout my career, I have relied heavily on a network of physicians to offer advice on strategic and operational issues facing the business. Being a physician helps retain those essential links to the customer. It's the way I keep myself updated. As an example, my specialization in neonatal care helped inform our due diligence in deciding to acquire Premacure's drug for retinopathy in premature infants. I could see from my experience in intensive care that there was a real need for this indication—that the clinical benefits outweighed the investment risk. I can recall the joy of parents in the successful delivery of a premature baby, only to fade when they find that the child will still be a special needs case because of the blindness or impaired eyesight.

PE: Are you a believer in corporate culture as a driver of success? If so, what do you intend to do to put your own stamp on Shire's culture?

Ornskov: Shire has a distinct culture that has been critical to our success. Each of my CEO predecessors have contributed to the strengthening of this culture. I intend to continue doing the same, as I believe that the fate of any company is ultimately determined at the water cooler. If people at the operations level feel good about their work, if there is broad understanding of what the company stands for and where it is going, then you will retain the productivity and alignment necessary to advance in the marketplace.

What we have to do now is to build on the legacy of growth over the past 10 years. We've come to a stage where, as we get bigger, it becomes harder to retain that entrepreneurial spirit, the organizational flexibility, which allows us to grab the best opportunities—quickly. I will challenge the Shire organization to make sure we don't become sclerotic, or too slow in decision-making, or too bureaucratic, with excessive layers of decision-making. We must continue to take a balanced approach to risks, so that we stay ahead of the curve of science and keep the focus on what works best for patients.

This sentiment is reflected in the new strategic plan, where we have metrics to show we are shortening time to action, retaining a flat organization structure, delegating responsibility to the level closest to the customer, rooting out mental fatigue by ingesting new ideas, and not being afraid to take risk in our business development and pipeline decisions. Shire is a company that will continue to take big bets on innovation. I intend to speak out widely, within and outside the company, to relay this message: Shire will only grow if we continue to innovate. If we stay with innovation, then we avoid the negative side-effects of bigness. I have no plans to stay holed up in a corner office. In fact, I don't have one. Though I am based in Lexington, MA, I am a globe trotter. Shire is many years away from a culture of corner offices.

PE: What is the biggest external threat to Shire and the industry over the next few years?

Ornskov: It's the loss of innovative capacity that preoccupies me, from the instant my work day begins to the moment it ends. If we run out of innovation, we also cede our right to exist; society will sever the implicit contract that allows us to perform as a profitable enterprise. In my role at Shire, I have to continue to deliver on innovation—I am first and foremost the company's Chief Innovation Officer. I worry less about the issue that many experts raise—that innovation lacks a reproducible formula and is thus not understood by those who regulate us. To me, innovation is like good design. You can consult the academic experts or write books in an attempt to define it, but in the end innovation is entirely intuitive: those who need it, know it.

PE: Are you pleased with the management transition thus far? There has been some turnover in senior line positions.

Ornskov: After more than a decade of success, and with the departure of an outstanding CEO like Angus Russell, some turnover is to be expected; some people felt it was time to bank on that success and consider other opportunities. I'd call that a simple coincidence in time, not a coincidence of causality.

PE: Finally, how will you define success for you and Shire in three years' time?

Ornskov: I can cite three. First, that we maintain a strong and distinct organizational culture, attracting great talent. Second, that our in-house pipeline and licensed business development assets execute well in delivering at least several new approved innovative drugs to patients who need them. Third, that all our key constituencies—shareholders, customers, patients, and regulators—will rate Shire as one of the top specialty drug companies.

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