Profile: Jan Leschly - Cash drives the need to be number one

The SmithKline boss used to say big wasn't necessary. It is now, writes Dana Rubin

JAN LESCHLY has been a vocal proponent of the view that massive mergers and acquisitions are not a panacea for the problems of the drug industry.

So it's ironic that the 57-year-old chief executive of SmithKline Beecham should be the one to steer his drug and healthcare company towards a merger with American Home Products. Such a merger would create the world's largest drug company.

Just a few years ago, when some of the giants of the pharmaceuticals industry were combining forces, it was Leschly who cautioned against the dangers of relying on acquisitions to create growth. The surest route to prosperity, he said, was not takeovers, but new products.

"It doesn't matter how big you are," he said at the time. "I don't believe you have to have 10 per cent of the drugs market to prosper," referring to a comment by Sir Richard Sykes, then chief executive of SmithKline's rival Glaxo, which merged with Wellcome in 1995. So what has happened to change Leschly's mind?

The cost of developing new drugs, for one thing. In recent years the cost of new technologies needed to develop drugs has skyrocketed. It now takes at least $400m (pounds 240m) to $500m to bring a new drug to market.

"He's been hindered by his cash limitations," says Mark Becker, pharmaceuticals analyst at JP Morgan Securities in London. Becker said SmithKline now spends about $1bn a year on research and development, about half the spending of European rivals such as Novartis, Roche Holding and Glaxo Wellcome. "He needs to increase his R&D substantially," says Becker.

If the merger goes ahead, Leschly - a former Danish tennis champion who lives in the US - would almost certainly become chief executive of the combined companies. He could not be reached for comment.

Since becoming SmithKline chief executive in 1994, Leschly has focused on new drug development, pushing the company into the promising but so far unprofitable field of genetic research. Last May, SmithKline committed $125m to a collaboration with the biotech firm Human Genome Sciences of Rockville, Maryland.

Leschly, who played in 16 Wimbledon tennis tournaments and the Davis Cup before going into business, has won praise for his solid corporate leadership and uncompromising sense of competition.

"The best argument wins and there is no mercy," he once told an interviewer. "But some people don't understand that you play the game and afterwards you go for a beer and you're friends."

Leschly has impressed the investment community with his intense if somewhat hyperactive presentations. "He is a very inspirational person," says Jami Rubin, a pharmaceuticals analyst at Schroder & Co in New York. "You want to buy his stock. You want to work for the guy. You believe in what he's saying. He walks in a room and the place lights up."

He grew up in Odense, Denmark's second largest city, one of two sons. Older brother Peter taught him to play tennis when he was six, and within a few years he was beating his brother. He travelled the world on the tennis circuit but never got further than the quarter-finals. A family shock led him to give up the game - his brother suffered a mysterious fever and was left paralysed. Now in a wheelchair, Peter Leschly is a businessman in Denmark with a number of corporate directorships, including hi-fi firm Bang & Olufsen.

While playing tennis, Leschly had trained as a pharmacist in Copenhagen and received an MBA there. In 1972 he joined the Danish pharmaceuticals company Novo Nordisk, and in three years was president of its pharmaceuticals division.

Through a joint venture with the US company Squibb, Leschly met executives at that company and in 1979 he was asked to join them as vice-president of commercial development. His wife Lotte gave up her dental practice in Denmark, and she and their four sons moved with him to Princeton, New Jersey.

Leschly was said to be in line for the chairmanship at Squibb when the company was sold to Bristol-Myers. Instead he found himself without a job, a predicament reportedly sweetened by a payoff of several million dollars. He was 49. He once described his choices then as: "I could buy an island. Not me. I could start my own business. Or I could go back to corporate life.''

While weighing these options, he sat in on a few classes in philosophy and religion at Princeton university, where his son was studying. It turned out to be a clever public relations move, conferring on Leschly a reputation as something of a philosopher-king.

The following year he was recruited to head the pharmaceutical division of the newly-created SmithKline Beecham, the result of a merger between London-based Beecham and SmithKline Beckman of Philadelphia. It was understood that he was in line for the top job, and when Bob Bauman retired as chief executive in 1994, Leschly took over. He has been credited with making the merger work, restructuring the company, bringing in new products and moving boldly on acquisitions. Since he became chief executive, SmithKline shares have climbed from 350p to 721p, outperforming every other drug stock.

In his first five months, Leschly made two major purchases - Sterling Winthrop, maker of painkillers and other drugs, for $2.9bn, and Diversified Pharmaceutical Services, a large drug wholesaler, for $2.3bn. The first has been regarded as a far more successful buy. He also tried to buy American Cyanamid but was outbid by American Home.

In recent years SmithKline has turned to emerging technologies such as bioinformatics, combinatorial chemistry and smart screening in the search for new drugs. Leschly has said the industry can no longer wait for academia and biotech companies to develop new drugs and then buy the rights: companies must get involved at early stages of research through partnerships and alliances. He says he signs new deals just about every week although, to be fair, most of his competitors do the same.

SmithKline has done extremely well with its anti-depressant Paxil, its most successful drug in growth terms. It has also had good results with Relafen, an arthritis painkiller. Two drugs with billion-dollar potential are in the pipeline: Idoxifine, for osteoporosis and breast cancer, and Avandia, a diabetes drug.

This success, actual and potential, may lie behind his interest in merging with AHP. "Because his pipeline is so robust, he has to increase his marketing effort quite a bit," says Becker. If Jan Leschly can realise all his sales potential, invest in marketing and double R&D, he will be doing very well.

Copyright: IOS & Bloomberg