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Leadership and strategic innovation in pharma

The CEO of Shire explains how he’s repositioning the company and gearing up for more change.

Since 2013, Shire has been stepping up its strategy to become the world’s leading company for people with rare diseases. McKinsey senior partners Martin Dewhurst and Andy West recently talked with Shire’s CEO, Flemming Ørnskov, about the company’s efforts to transform and the importance of staying three steps ahead of the organization you’re leading. In this interview, part of our Biopharma Frontiers series on how the pharmaceutical industry is evolving and how leaders can adapt, Ørnskov discusses his vision for the future and the critical elements of leadership. An edited transcript of their conversation follows.

McKinsey: What big choices did you make at Shire, and what’s your vision for rare diseases?

Flemming Ørnskov: The Shire that I work for now is not the same company I joined in early 2013, with three independent divisions. To give you an idea, most of our sales and profits came from attention-deficit hyperactivity disorder (ADHD) treatments. Then there was a maturing rare-disease business, and finally a wound-healing and cell-based therapy business. Put that together and we were a strategically undifferentiated specialty company that was overreliant on ADHD and the US market. We had little growth, a very small pipeline, and a lack of a cohesive culture among our four to five thousand people, who were spread across Boston, San Diego, and Chesterbrook, Pennsylvania.

It was obvious that the company was ripe for change. What was needed was a strategic analysis, a new team in place, and an innovative pipeline to address Shire’s lack of growth. One of our first acquisitions was SARcode Bioscience, the developer of a treatment for dry-eye syndrome. Investors at the time responded pretty negatively, but it was a necessary move to create a pipeline, and I liked the potential of the science. Another acquisition was a neonatology product and company. Both of these new products were at least three years from market.

Then we looked at our options: Sell the business, split it up, or find a way out? I wanted to start by creating one company out of our separate businesses. It’s also quite difficult for employees to share ideas that drive innovation and create value by being spread out across multiple locations. I set up a program called One Shire, where we moved parts of global operations to Switzerland and consolidated our US presence in Boston. That enabled us to improve our margins to 44 percent, from 36 percent, and as we put more emphasis on commercial execution, we started to see growth.

That still left a question over the path forward. We looked at unmet needs, market prospects, our skill set, and where the industry was going, and we decided we should go for biotech and rare diseases. I confirmed the vision with the board, and we set out to build on that vision. That’s what we are doing today.

McKinsey: After you raised expectations and the company became much more valuable, you had to deliver. How did you create the right pace and intensity in your culture?

Flemming Ørnskov: To become a leading biotech in rare diseases and highly specialized conditions, we needed speed. If we didn’t move fast, we might not stay independent.

In the spring of 2015, while we were still integrating NPS Pharmaceuticals, I looked at our organization, our portfolio, and the 43 countries we were in and saw that we were subscale everywhere. We needed to get to scale in our country organizations, manufacturing capabilities, and commercial infrastructure, and we needed a more diversified portfolio. I realized that we had to do a deal to go from a small aspiring biotech with a few products to the leading biotech in rare diseases. We needed to be in many more countries—today it’s 68—and simplify our structure so we could move into the US and international markets with a global backbone. There were many different strategic options in play at this time. After a period of evaluation, assessment, and extensive negotiation, we moved forward with Baxalta.

McKinsey: How did you earn your organization’s trust and the trust of the board to make such bold moves when you were new to the leadership role?

Flemming Ørnskov: Any new CEO has to start by establishing a fact-based relationship and rules of interaction with your team and the board. Even if you’ve been at the company for some time, you can’t expect them to trust you from day one. You gain people’s trust by letting them see you can execute and deliver what you say.

People viewed the One Shire program with a bit of skepticism at first, but its success enabled me to keep the organization intact. We also grew the top line, even though we had no new products coming in, as well as doing smaller deals like SARcode. That helped me earn trust early on.

The company had never made a deal larger than a billion [dollars], so when I went to the board and proposed an acquisition of more than $4 billion, it was a big deal. They’ve been incredibly supportive; they make me and my team work hard, and they demand the facts. We present clear integration plans, have many pairs of eyes doing stringent diligence, and deliver. We’ve gone from $160 million to almost $50 billion in acquisition spending. Acquisitions were essential because we had a very nascent pipeline and limited opportunities.

As a new CEO, I learned you don’t have much time to think. Time flies by so fast, and you need to put a plan in place and get going in order to succeed. Bold moves are for me not about one single bold move. You have to do the analysis and summon the conviction to tell your investors, “This is where we’re going, this is why, and here’s how I’m going to do it.” People expect CEOs to be leaders, not managers.

McKinsey: What makes the difference between leading and managing?

Flemming Ørnskov: Something I’ve always done is keep my board informed. I send them a letter every month. Our strategy hasn’t changed since 2013, but people want to see a road map. Where are we going? Where are we today? How does this step fit into the bigger plan? The CEO needs to be a storyteller: I constantly remind my board we’re on a journey to build the world’s leading rare-disease company. And I never give them surprises. Everything I do is pearls on the string of the story we’re building together, and I tell that story at every board meeting until everybody is tired of hearing it.

From my vantage point, the most successful CEOs are the ones who develop a clear story about what they’re trying to do very early on. Investors are willing to go quite some distance with you, and many of them are not short term. If they understand where you’re going and why, they’re willing to support you most of the time on long-term decisions. But you can lose your investors and your board if there’s no clarity around whether you’re going left or right.

In a crowded world, investors have many opportunities to invest in healthcare. You need to differentiate yourself. Shire is simple: it’s a growth story, so trust me and my team to deliver growth through innovation.

McKinsey: How has your background as a clinician helped shape your thinking about Shire’s strategy?

Flemming Ørnskov: I don’t think I’m better qualified to be CEO just because I’m a physician, but I do use my clinical experience in my work. It helps me keep our organization focused on the patients we serve. Many of our products go to pediatrics, which is where I trained. Years of working in children’s hospitals convinced me there were enough unmet needs in rare diseases to support a business case. Many rare diseases have a genetic component and are interconnected in some way, whether it’s a product for the eye, for the gastrointestinal tract, or for the central nervous system.

My understanding of how you position products, how they will be used, and the need for more out-of-hospital treatments, patient services, and genetic testing—these are all things I’ve acted on since coming to Shire. We’ve made dramatic investments in genetic screening and patient services and put huge focus on a broad hospital-based portfolio and pediatrics products. All of these things happened because of my background and experience.

We’ve evaluated every deal Shire has done through a deep understanding of the products and the patients we serve. Subsequently, I’ve worked with my team to understand the financials, but whenever we’ve looked at a company or compound, we’ve been willing to make bets based on science and unmet needs. That probably wouldn’t have happened had I not felt comfortable with the medical side. My team has had a good success rate in seeing value in products where people have been skeptical because we’ve been able to look at them from a physician’s and patient’s perspective.

The fact that I’m a physician, I interact with customers, and I’m truly interested in them helps us stay close to them. In fact, many of our business-development ideas come not through our organization but through physicians who contact us with their ideas.

McKinsey: How do you keep that customer connection as you get bigger and bigger?

Flemming Ørnskov: I prioritize. Many medical meetings are on the weekend, which means I can go. When I come back, I typically have ten pages of notes with ideas for new studies we could do or things we need to improve. I don’t know where else I would get those ideas. They are unfiltered customer feedback about our products or issues that only doctors would know.

You don’t need a medical background to do market research or to talk to doctors, but being a physician trains you to write patients’ stories down, analyze the symptoms, look at the findings, and build up a picture of what this could be. That’s how I learn and where I get my energy from. When I come back from a meeting with notes about studies we should be doing, I discuss them with my team, and that fuels us.

McKinsey: How do you manage to fit all this in and still do the things that only you as CEO can do?

Flemming Ørnskov: I have probably delegated a few conference talks, dinners, or meetings to my senior staff this week because I know they can represent the company well. I think CEOs have to be comfortable with the people they’re surrounded by. I have a great senior team, and delegating to them not only helps their visibility, but it also allows me to spend time on other things that give me energy. The overall external face of the company is important, but I would rather be the external face with our customers.

A CEO needs to be at least three steps ahead of the organization. They look to you for guidance. You can’t just invent on the go. In the next year or two, my time is going to be spent leading the organization through the largest integration we’ve ever done. I have a small group of thought partners who I sit down with internally and externally, and we talk about what we should be doing and what the next bold move could be. If you’re not three steps ahead, you’re not doing what you’re supposed to do.

McKinsey: How do you see Shire changing over the next few years as it grows?

Flemming Ørnskov: The first thing on my mind is the idea of clustering. I’m thinking about how technology will affect the business we’re in. All our products are delivered through some type of device, and they all involve complex manufacturing processes. We need to create a cluster where we have up-to-date expertise and interactivity regarding cutting-edge manufacturing, devices, and diagnostics. As I look five to ten years out, this is a problem I need to solve.

The other area where I think in terms of clustering is the interface between medical and commercial. It used to be that the pharma rep went to the doctor and delivered a message. Now you have medical information, patient services, account management, and maybe a rep who goes in to see the doctor as well. The commercial model has changed, so the organization must change, too.

Getting the access, medical, commercial, and account-management teams together in one place will be the most important driver of Shire’s future productivity and growth. I want Cambridge to be our US-based innovation hub, with more and more R&D. I’m thinking about where the cluster for commercial should be, how we get the product from the bench to the patient, and how we engage our customers. I’ve stopped thinking about sales and marketing and so on; the question now is are you on the technology side, the R&D side, the commercial model side, or the support side? Imagine Shire as a set of clusters for each of these things. That’s how we’re going to design and run the organization in the future.

McKinsey: When you need to stay three steps ahead, how do you develop a team that can keep up?

Flemming Ørnskov: Whether you’re a team member or the CEO, you get into trouble if you lose connectivity to your customers. Spend an afternoon with a physician and they’ll tell you about electronic record systems and subsets of patients and whether they like the device that comes with your medicine. Customers are saying they don’t think one product will fit all patients with Duchenne muscular dystrophy or with cystic fibrosis. There seems to be a subset where a genetic phenotype is expressed, and that’s what people will go for. Even infectious and cardiovascular diseases are heading toward more personalization, targeting a subgroup rather than a large population.

Many of our products are supertargeted for small groups of patients who will be genetically characterized. We need to adapt our business model to a new level of specificity and customization. And when the end product we deliver changes, so does the whole system leading up to it. If we offer a device with an infused product to a subset of patients with a certain genetic constitution, everything that comes behind it—manufacturing, targeting, marketing, sales model—has to change, too.

If we don’t adapt as an industry, someone else will do it for us. Take logistics; if you have a medicine you keep in your refrigerator at home, it will have a chip that says it’s a week from expiring so you should think about reordering it, or it will automatically reorder for you. That’s not so far out. But how will it affect the way we operate? What does a CEO need to do?

Of course I need to drive the business, and I can’t lose contact with the real world, but I still need to think two or three steps ahead. I also need to build an organization that is open to change and can adapt accordingly. If it can adapt, it can contribute to change in the industry.

Today’s young people want new challenges. When I came to the industry, it was like this: “Flemming, we don’t care you were a doctor; you start here, then you’re in sales, then you do this for three years.” But if you said that to someone on my team now, they’d say no thanks. They want variety, dynamism, and challenges. If you want to keep your employees, you need an environment that can offer them ten different roles. They don’t work in just marketing or sales but in an ever-changing organization.

McKinsey: If you were starting your journey again, what would you do differently?

Flemming Ørnskov: I’d take inspiration from innovative start-up companies a bit earlier in my career. People forget that companies like Google or Apple don’t start big; they start small. I’m always amazed by what small teams can achieve when they are dedicated and focused. You don’t need the perfect office, setup, or even salary at the beginning. If you give people the right challenge, the right freedom, and eventually the right reward, they will create astonishing things.

If I look at many of the companies we’ve acquired or partnered with, they started in labs or were driven by individuals. We should never forget that innovation starts from the bottom, not the top.

About the author(s)

Flemming Ørnskov is the chief executive officer at Shire Pharmaceuticals. Martin Dewhurst is a senior partner in McKinsey’s London office, and Andy West is a senior partner in the Boston office.
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