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At Upjohn, A Grim Changing Of The Guard


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AT UPJOHN, A GRIM CHANGING OF THE GUARD

For Robert Farmer, the crisis at Upjohn Co. hit home in late March, during a Saturday brunch at the Kalamazoo Country Club. That's when he spotted Theodore Cooper, Upjohn's chief executive, frailly entering the dining room. It became clear then that the 64-year-old Cooper was losing his battle against bone marrow cancer. "It was sad to see him like that," recalls Farmer, a former Upjohn materials manager.

For Upjohn, Cooper's sudden decline couldn't come at a worse time. Cooper, the company's first CEO from outside its founding family, was trying to get the 107-year-old pharmaceutical giant through a rough period of lackluster growth, aging products, and rising public furor over health-care costs. But on Apr. 14, he was admitted to the University of Virginia Hospital, suffering from severe respiratory problems.

With its chieftain gravely ill, the Kalamazoo (Mich.) company is scrambling to adapt. Cooper has kept his CEO title, but Ley (pronounced Lee) S. Smith, 58, a 35-year Upjohn veteran, has taken over his duties. The question now: Can Smith consolidate his power while forging a turnaround?

Smooth going is far from assured. In choosing Smith, Upjohn's board defied speculation that William U. Parfet, the charismatic 46-year-old president and great-grandson of founder W. E. Upjohn, was the heir apparent. For now, even Parfet's father, R. T. "Ted" Parfet, who was once Upjohn's chief executive and remains an influential board member, seems to agree that the younger Parfet isn't ready to run the company.

GETTING SENTIMENTAL. Parfet junior is playing the good soldier. He's content, he says, with being promoted to vice-chairman. Even though two other executives hold that title and his duties--running the company's health businesses, worldwide manufacturing, and finance--remain the same, he says that he's "close enough to the top to influence change and direction."

But some insiders expect Parfet to grow restless. Last year, an employee asked him if he was looking forward to a seat in Upjohn's corner office. Parfet got sentimental, launching into a speech that ended with him heartily caressing his stomach and conceding: "It would make me feel real good inside." Even today, Parfet says: "If someday I'm tapped to run the company, I should be delighted."

The people-oriented Smith, meanwhile, will have a hard time emulating Cooper's intensity. Smith endears himself to company underlings with a steel-trap memory for names and details, while Cooper's intense and serious-minded nature earned him a reputation as a workaholic. Indeed, even as his health began to deteriorate, it wasn't uncommon for employees to see Dr. Cooper, as he is known, tooling around Upjohn in an electric cart hours after colleagues had gone home.

GAP YEARS. Smith vows to stay on the course Cooper has followed since taking Upjohn's helm in 1987. "As far as I'm concerned," says Smith, "he's still the chairman and chief executive." That means maintaining Upjohn's push to develop new products, forge strategic ties with other drugmakers, streamline operations, and cut the time it takes to get drugs through the FDA.

Still, Upjohn faces tough times ahead. Four of the company's leading products lose patent protection by mid-1994 (chart). And the Clinton Administration's push to control health-care costs may squeeze earnings. Smith concedes that "1994 will be a difficult year." But like Cooper before him, he downplays the impact of losing patent protection, saying: "We would have been damned fools if we hadn't been planning for that."

Even with the patent expirations, Smith says, "we're not expecting anything less than a respectable year." Last year, earnings slid about 30%, to $324 million, on revenues of $3.6 billion, due to accounting changes and restructuring charges, plus eroding sales of the sleeping aid Halcion. Upjohn's earnings are expected to rise slightly this year from that weak base. But further out, says analyst Sharon Dorsey Wagoner of Argus Research Corp., "the company's new product potential doesn't appear to offset its patent expirations." That's a bitter pill to swallow--no matter who is running the show.UPJOHN'S DOSE

OF REALITY

Products losing patent protection by May,

1994

Drug 1992 sales Percent of

Millions total sales

XANAX $650 18%

MICRONASE 267 7

HALCION 131 3

ANSAID 152 4

*Includes some Glynase sales

DATA: ARGUS RESEARCH CORP.

Ron Stodghill II in Kalamazoo, Mich.


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