GlaxoSmithKline’s’ (NYSE: GSK) top executive in the U.S. acknowledges that her company and others in the pharmaceutical industry have “lost their way,” but she says GSK is embedding new rules and making internal changes to help repair the company’s tarnished image.

Deirdre Connelly, president of North American Pharmaceuticals who is based at GSK’s North American headquarters in Research Triangle Park, laid out the company’s strategy for recovery in a speech on Monday.

“Some of you may be wondering why I should be talking about values, when my own company has borne its share of allegations and has been in the news lately for settlements and legal charges,” she said. “I’m here precisely because my company and the people I work with are not what we are often portrayed publicly.”

She pointed out that GSK stresses four values:

  • “First, focus on the best interests of the patient
  • “Second, be transparent about our working relationships
  • “Third, operate with integrity
  • “Fourth, respect those we work with and serve.”

Connelly is part of a new management team being put in place by Andrew Witty, who took over as GSK’s top executive in 2008. Witty hired Connelly away from Eli Lilly, where she was president of U.S. operations, in February of 2009.

Much of the national coverage of Connelly’s speech focused on her disclosure that GSK had pulled TV advertisements for the erectile dysfunction drug Levitra. But Connelly spoke in much more detail about the legal, ethical and public relations challenges facing the drug giant and other firms.

“She feels very strong about this,” GSK spokesperson Mary Anne Rhyne said when asked why Connelly chose to make the speech. “Se is hoping to call attention to the fact that these issues arose from behaviors in the past and that we are making major changes.”

GSK recently set aside more than $3 billion – essentially its profits from 2010 – to pay for legal claims filed by users of its diabetes drug Avandia. Linked to heart problems, the drug has been banned in Europe and its under tighter FDA mandate in the U.S. (Read details here.)

The company also settled last year for $750 million a federal investigation into drug production problems at a plant it once owned in Puerto Rico. The case arose from complaints filed by a GSK employee, Cheryl Eckard, who worked in RTP. (Read more about the report here and GSK’s rebuttal here.)

In her speech, Connelly said GSK is not alone in facing legal problems as well as loss of public trust.

“Consider this,” she said. “Since January of 2009, the Justice Department has reached settlements totaling $9 billion against healthcare companies. These cases involved alleged false claims, fraud, and FDA violations.

“As someone who decided more than 25 years ago to pursue a career in the pharmaceutical industry, I ask myself: What’s going on? Why is this happening?”

Pharmaceutical firms “lost their way,” Connelly said.

She noted that a recent survey found that “only 11 percent of people said the pharmaceutical industry is generally honest and trustworthy.”

Citing such practices as giving gifts and providing trips to physicians, Connelly said the “business model may still be OK for other industries, but we do not sell chocolate bars.”

Within GSK, Connelly pointed out that changes have been made in performance plans and evaluations with more emphasis placed on integrity and transparency. The company also has put in place compliance officers across various business units within its global operations.

The compensation plan for sales representatives now focuses on scientific and business knowledge, customer feedback and the performance of business units. They are not “bonused on scripts,” she said, referring to prescriptions.

Connelly said the pulling of TV advertising for Levitra is an example of GSK’s reappraisal.

Erectile dysfunction is a legitimate medical condition, she noted. However, it “certainly is not a condition parents, aunts, uncles and grandparents want to explain to children while watching a football game on Thanksgiving.”

Rhyne noted that the decision to pull the ads was made by Connelly, and the change was instituted more than a year ago. GSK continues to advertise the drug, but does so targeted at demographics of men affected by the disease, Rhyne said. She also noted that ads are now more educational about the condition and how it can be treated.

Read the full text of the speech here.

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