DOESN'T ANYONE KNOW HOW TO RUN A DRUG COMPANY?
By John Simons

(FORTUNE Magazine) – THE TYPICAL FORTUNE 500 COMPANY rarely has trouble filling the job when a CEO retires (or gets fired). To wit: Less than two months after Carly Fiorina's ouster, Hewlett-Packard announced NCR CEO Mark Hurd would be its next leader. Most major corporations--take GE or Intel--don't even have to look outside their own campuses in succession searches. But there's a glaring exception to the norm: Big Pharma. At Merck, for example, the search to replace outgoing CEO Ray Gilmartin is entering month six. There are so few internal candidates that Wall Street watchers have concocted wild rumors of Schering-Plough CEO Fred Hassan or former Warner Lambert CEO Lodewijk J.R. de Vink stepping in. An even more bizarre scenario has Roy Vagelos, the 75-year-old former Merck CEO, vaulting out of retirement. Merck's search firm, Heidrick & Struggles, is reportedly trolling for candidates in other industries that share Big Pharma's regulatory and business challenges, such as telecom and technology. (In spite of a series of management mishaps culminating in last September's Vioxx recall, Merck insists Gilmartin is staying in place until next March.)

But Merck's failure to locate a successor isn't just a result of the company's recent troubles. It underscores a deeper problem. Simply put, there is an industrywide shortage of men and women capable of running a big drug company. Though Merck has a handful of talented top managers in various divisions, none have emerged as well-rounded future CEOs. The same is true throughout the industry, thanks to the increasingly specialized expertise that modern drug companies require of their second-tier managers in marketing, manufacturing, and research units. "Pharma companies are historically organized by function--sales and marketing, regulatory, manufacturing, and research. They don't have cross-functional experts," says Joseph Boccuzi, director of executive search firm Spencer Stuart's life sciences practice. The problem: "You don't want someone from the marketing side confronting a partnership or joint venture for the first time in his or her career while at the top of the organization." Adds Schering-Plough chief executive Hassan: "The CEO of today's large pharmaceutical company must be capable of very sophisticated engagement with an astonishingly long list of stakeholders: lawmakers, physicians, public interest groups, patients--the list goes on." A Big Pharma CEO job "demands skills, competencies, and personalities that are very different from those required for success in individual business and functional units. So it's not surprising that there is a dearth of individuals who are able to jump into these jobs."

Industry leader Pfizer believes it has a solution for the leadership drought. In part as a recognition of the industry's CEO talent crisis, Pfizer chief executive Hank McKinnell in February elevated the company's chief financial officer, head marketer, and general counsel to equal positions just beneath him. The three candidates will share broad responsibilities. According to insiders, the move not only sets the stage for a succession runoff (McKinnell is scheduled to retire in February of 2008) but also ensures that the winner will be well versed in all aspects of Pfizer's business. Too bad they won't be trained in time to help out Merck. -- John Simons