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SMITHKLINE GOES TO CHAPPELL TO MARRY DISPARATE ELEMENTS OF WORLDWIDE DRUG BUSINESS; HEAD OF SKF-INTERNATIONAL TAKES ON U.S. AND R&D ALSO

Executive Summary

SmithKline's worldwide drug business has one head again: John Chappell, previously president of SK&F International, was elevated to the new position of president of Smith Kline & French Labs at a Sept. 27 board meeting. Chappell's primary task will be to meld and, at the same time, trim down the U.S., international and R&D drug operations. The company plans to cut 1,300 positions from line operations, primarily from manufacturing (see related story, p.16). SmithKline says it will continue to protect its sales force in the cutbacks. The emergence of Chappell, 52, as the key figure in SmithKline's drug business follows the mid-summer departure of the other two drug business presidents, James Cavanaugh (U.S.) and Stanley Crooke (R&D). The consolidation program is part of a plan outlined by Coopers & Lybrand during a review of the company in the first half of this year. Chappell, a 26-year veteran of SmithKline, will report to SmithKline Beckman President George Ebright. At mid-summer, Ebright stepped into a position directly in charge of the pharmaceutical business. Chappell's promotion, in effect, creates a new executive tier below Ebright. One of the key challenges facing Chappell will be the integration of the R&D effort with marketing and product registration. While the coordination of those efforts is a standard challenge throughout the industry, at SmithKline it has been noticeably pronounced. In 1986, for example, the company implicitly acknowledged the split by setting up a divided management system, with R&D reporting to the chairman of the company, Henry Wendt, and marketing reporting to Ebright. Chappell may also be faced with the task of incorporating the wide scope of R&D projects that the company has been undertaking with outside partners, such as recent agreements with Nova (for bradykinin antagonist work) and Invitron (for the manufacture of mammalian produced CD-4). One objective Chappell apparently will not have to meet is a strict target for 10% earnings growth. In 1987, SmithKline committed itself to that target through an extended period despite its maturing product line, which put exaggerated pressure on the drug business to produce short-term results. "Our primary concern was to reform our pharmaceutical business from what had been three rather separate pharmaceutical businesses . . . three rather separate autonomous pieces, into a unified single unit, efficiently organized [and] cost effective," Ebright commented at a Sept. 27 press conference in Philadelphia. He said the move would accomplish two things -- allow the company to "compete in the ever intensively difficult competitive environment that we see in the pharmaceutical market and . . . very efficiently bring new products out of R&D into the marketplace." One problem under the previous organization was said to be a lack of coordination, and at times hostility, between the three SK&F units. SmithKline Chairman Henry Wendt explained the consolidation within the context of the company's increasing international presence. "Years ago, when we were mostly a U.S. business, we set up a separate international arm and used it to launch Tagamet in every major country," he said. The high cost of new drug development now requires a global business approach. In addition, Wendt continued, "we think it imperative that we bring our SK&F commercial and administrative people together with our R&D people." George Poste, who replaced Stanley Crooke as SK&F president-R&D, and Frederick Kyle, successor to Cavanaugh as SK&F president-U.S., report to Chappell under the realignment. However, Kyle assumes the new title of exec VP-operations, with six execs -- one for manufacturing and five covering geographic areas worldwide -- reporting to him. Paul Goddard and William Packer, VP-strategic marketing and VP-biologicals, respectively, are the other SK&F operations execs reporting to Chappell (see chart below). Despite the company's move to unify its worldwide drug operations, SmithKline is continuing to take an "if it ain't broke, don't fix it" attitude toward its $ 700 mil. Allergan ophthalmic drug business. Allergan will retain its autonomy and continue to operate as it did before the reorganization. The company has also lowered its year-end net earnings projection to between $ 3.75 and $ 4 per share. In June, SmithKline estimated that 1988 earnings per share would likely be 5-10% below the $ 4.50 reported for 1987. "This relates to lower U.S. sales of Tagamet and Dyazide," Wendt explained. "Even with the slower U.S. sale pace, we expect worldwide sales of Tagamet in 1988 to again exceed $ 1 bil."(ITEM 190)Chart, SMITH KLINE & FRENCH LABORATORIES REORGANIZATION -- SEPT. 27, 1988
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