#3 GSK

980 Great West Rd. Brentford, Middlesex TW8 9GS, UK
Tel: (44) 020 8047 5000 Fax: (44) 020 8047 7807
www.gsk.com

Headcount	99,003
Year Established	2002
Pharma Revenues	$37,810	-1%/+6%*
Total Revenues	$45,177	-1%/-7%*
Net Income	$8,742	-18%/-13%*
R&D Budget	$6,599	+3%/+10%*

* converted at avg. exch. rate / based on local currency (GBP)

2008 Top Selling Drugs
Drug	Indication	Sales	(+/-%)
Seretide/Advair	asthma, COPD	$7,675	+10%
Valtrex	herpes	$2,215	+18%
Lamictal	epilepsy, bipolar disorder	$1,718	-22%
Imitrex	CNS	$1,275	-7%
Infanrix	pediatric vaccine	$1,265	+16%
Flovent	respiratory	$1,256	+1%
Hepatitis Vaccine	hepatitis	$1,234	+17%
Augmentin	antibacterial	$1,089	+3%
Paxil	CNS	$954	-14%
Avandia	diabetes	$950	-46%
Kivexa	HIV/AIDS	$820	+26%
Combivir	HIV/AIDS	$803	-12%
Avodart	enlarged prostate	$740	+30%
Wellbutrin	depression	$634	-40%

Account for 60% of total pharma sales, same as in 2007.

Profile

One look at GSK’s top-selling drugs tells you that almost all of them are on the downside of their life-cycles. The only products to show significant growth are Advair/Seretide, Valtrex, and vaccines. Unfortunately, Valtrex will start to see generic competition later in 2009, and the original combination patent for Advair/Seretide expires in September 2010.

In local currency (the Great British Pound or GBP), GSK posted a 6% increase in pharma revenues last year. Unfortunately, the average value of the GBP dropped nearly 8% against the dollar during that span, so that pushes GSK out of the #2 slot. Avandia’s freefall continued, with revenues dropping another 46% in 2008 to $950 million (-42% in GBP). In June 2009, the company released findings that show Avandia has no increased CV risk compared to other diabetes treatments, but the damage to the brand has been pretty severe. In the year since our previous report, GSK has put one new product — Promacta for chronic immune (idiopathic) thrombocytopenic purpura (ITP) — on the market.

GSK, to put it bluntly, is running out of time.

The Lowe Down GlaxoSmithKline has been spending quite a bit of money on outside deals in recent months, and you can spin that different ways. Is it that they don’t have as much faith in their discovery research as they should, since they’re going out and buying so much of it? To be fair, for the most part they seem to be buying into things that they weren’t doing themselves, which at least makes some sense. We can argue about whether they should have ramped up internal efforts on targets like sirtuins instead of just buying Sirtris, but they at least seem to have some strategy going. It was a rough year over there, with layoffs and general disruption, but things seem to have settled down for now. Their CEO has been going around telling the press that he’s come to realize that drug discovery is more of an art than a science. The only unnerving part of that is that artists, to make ends meet, often have to wait tables and eat weeds out of their back yards. But that’s still a healthier attitude than thinking that it’s an managerial process rather than a science. (When they start thinking that management itself is a science, it’s time to hit the exits).—Derek Lowe

Andrew Witty, who took over as chief executive officer in October 2007, made a formal announcement of GSK’s new strategy in July 2008. He said, “GSK will seek to generate future sales growth through supplementing strength in the core small-molecule pharmaceuticals business, with new investments in fast-growing areas such as vaccines and consumer healthcare and new growth areas such as biopharmaceuticals. At the same time, we are actively seeking to unlock the geographic potential of our different businesses, particularly in emerging economies.”

What does that mean, exactly? Well, one thing it doesn’t appear to mean that GSK is looking to buy another major pharma company in order to bolster its short-term pipeline. Since that announcement a year ago, GSK has continued to make plenty of development collaborations, bought its way into a number of emerging markets, formed a new joint venture with its biggest rival, and cut hundreds of R&D jobs, but it hasn’t made any mention of climbing aboard the major M&A train.

GSK’s biggest splash last year was its $3.6 billion acquisition of Stiefel Laboratories. A post from the WSJ Health Blog by Jacob Goldstein points out, “The acquisition isn’t about some hot new technology, or a promising pipeline. It’s about boring, stable products like acne creams.” The post cited a comment from a USB analyst who contended that Stiefel’s could help boost GSK’s existing dermatology business, while GSK could get Stiefel’s products into more overseas markets.

Speaking of overseas markets, GSK has also made several moves to build its presence in emerging regions around the globe. The same day as Mr. Witty’s new strategy announcement, GSK also signed a deal with Aspen, a South Africa-based pharma company, to commercialize Aspen’s portfolio of branded drugs in emerging markets (Aspen manufactures inexpensively, and GSK pays them a percentage of sales). In May 2009, GSK bought 16% of Aspen and sold a number of specialty meds to the company along with a manufacturing site in Germany. GSK had also sold some brands to Aspen in June 2008. The two companies plan to collaborate on commercializing products in sub-Saharan Africa, not including Aspen’s home country of South Africa. Their combined revenue in that region was $122 million in 2008.

HIV JV Just as desperate times have led GSK into markets that were previously underserved, limits on R&D resources have led GSK and Pfizer to form a joint venture in drug development. In April 2009, the two companies formed a new company for R&D and commercialization of HIV drugs. At the outset, GSK owns 85% of the company, which will handle 11 marketed drugs that generated sales of approximately $3 billion in 2008, gaining nearly 20% of the worldwide market. The as-yet-unnamed company will have another six drugs in its pipeline.

GSK set up a similar deal in June 2009 with Dr. Reddy’s, in which GSK will get access to more than 100 branded drugs that it will market in Africa, the Middle East, Asia and Latin America. The drugs cover CV, diabetes, oncology, gastroenterology and pain management; they’ll be manufactured by Dr. Reddy’s and revenues will be shared. During the year, GSK also acquired rights in emerging markets for several products from UCB and picked up Bristol-Myers Squibb’s Pakistan business and its mature products in Egypt.

I DPU Your CEDD

Of course, GSK isn’t going to get through this period simply by changing itself into a marketing operation for emerging regions. The company still needs to develop (and/or in-license) new drugs. As part of Mr. Witty’s new strategy, GSK has refocused around eight research areas: Immuno-Inflammation, Neuroscience, Metabolic Pathways, Oncology, Respiratory, Infectious Disease, Ophthalmology and Biopharmaceuticals. (I should note that this is GSK’s terminology, as it’s pretty obvious that “biopharmaceuticals” are involved in all of the therapeutic classes that come before it. That said, in GSK’s annual report, the company points out that biopharmaceuticals comprise only 6% of its pipeline, so maybe the DO need to make that its own area of focus.)

Acquisition News Target: Stiefel Laboratories Price: $3.6 billion Announced: April 2009 What they said: “This transaction will create a new world-leading, specialist dermatology business and re-energize our existing dermatology products. The addition of Stiefel’s broad portfolio will provide immediate new revenue flows to GSK with significant opportunities to enhance growth through leveraging our existing global commercial infrastructure and manufacturing capability.”—Andrew Witty, CEO of GSK Target: Genelabs Technologies Price: $57 million Announced: October 2008 What they said: “This arrangement, combined with our other collaborations, will give GSK a broad HCV drug discovery platform addressing novel targets and innovative therapeutic approaches.”—Zhi Hong, SVP of the Infectious Diseases Centre for Excellence in Drug Discovery (ID CEDD), GSK

The new strategy also granulates the company’s existing Centres of Excellence for Drug Discovery (CEDDs) with Drug Performance Units (DPUs), which will “focus on given biological pathway[s]” and contain between five and 80 scientists. The DPUs will have to compete for investment capital, in an attempt at replicating the entrepreneurial spirit of biopharma startups. They’ll have to develop three-year business plans and convince a Drug Discovery Investment Board that they deserve further funding. The board, according to a GSK statement, “comprises senior GSK R&D leaders and individuals from outside the company operating in the venture capital and Biotech/Pharma investment world.”

Two months after that announcement, the company launched GSK Oncology, which is pretty much what it sounds like: an R&D setup for oncology. The new group “will have the primary goals of identifying new targets and pathways, conducting innovative clinical research and cost-effectively increasing development capacity in order to deliver the unit’s large portfolio of medicines,” said GSK’s chairman of R&D, Moncef Slaoui. That group will contain around a thousand people, which breaks with the DPU model. Evidently, a bigger network is critical for oncology.

GSK hasn’t slowed down its pace of external collaborations, even while trimming its internal R&D. We’ll see if that new model can keep GSK afloat once Advair/Seretide begins its downward slide. Maybe the company will see enough of a revenue boost in 2009 from Relenza — an alternative to Tamiflu to combat the slow-motion swine-flu pandemic — to offset some of its other decliners.

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