Doing More With Less

Andrew Witty barely got his feet under the chief executive's desk at GlaxoSmithKline before starting to implement major changes to the way the business operates—at both ends of the product life cycle.

Sarah Houlton

He plans to expand its consumer health and vaccines businesses, make a foray into the generics market, and split its R&D division into even smaller units. The hope is that these moves will make GSK less dependent on those increasingly rare blockbuster products.

Not that this type of change hasn't been done before. Novartis blazed the trail for Big Pharma companies getting back into the generics marketplace. And more recently, other companies have moved into the sector by snapping up generics firms, as in the recent acquisition of a controlling stake in India's Ranbaxy by the Japanese pharma Daiichi Sankyo.

However, GSK's strategy is a little different. Rather than taking on the difficult Western generics markets and doing a wholesale takeover of a rival with all its cost implications, it is entering into a marketing agreement with South African generics company Aspen Pharmaceuticals focused on emerging markets.

The licensing collaboration, which also involves Aspen's Indian joint-venture partner Strides Arcolabs, is designed to enable GSK to take advantage of the predicted rapid growth in sales of branded meds in emerging markets. Between them, Aspen and Strides have a portfolio of 450 molecules and 1,200 products. Aspen will continue to sell them in sub-Saharan Africa and a handful of other territories where it is already active. GSK will register the products in markets where they're not already available, and hopes to start selling in 2010.

"I don't see us ever moving into being a generics player in, for example, the classic US marketplace, where it is a very cutthroat patent expiration and litigation-driven business," Witty explained. "But if you look at the emerging economies, where, realistically, there is little distinction between patented medicines and generic medicines, we clearly want to be assembling a bigger portfolio of products to give us a more competitive position there."

There's also a growing trend toward smaller units within Big Pharma's research operations. This apes the responsive, fleet-footed nature of a biotech company, allowing scientists to be more entrepreneurial. GSK pioneered this approach in 2001, when it dismantled its traditional research structure and created Centres of Excellence for Drug Discovery (CEDDs) for specific therapeutic areas. Now it's going a step further and setting up drug performance units (DPUs) within the CEDDs. These divisions will focus on a single biological pathway, and each will comprise between five and 80 scientists.

The means of funding the science is changing, too. A new discovery investment board will dish out the cash to the DPUs, which will have to convince the board that their ideas are worth funding, with performance and value creation set against three-year business plans. The board includes GSK people, members of the external venture capital world, CEOs of biotech companies ,and experts from the customer side of the marketplace. "We're trying to drive a much more ruthless, well-informed, and objective approach to how we make capital allocation decisions in drug discovery," Witty explained.

The hope is that this strategy will enable the company to launch a handful of new products each year to replace the revenues lost from patent-expiring blockbusters, rather than relying on finding that elusive huge seller.

And when those blockbusters do appear, they plan to make the most of them. "I would describe this as being a shift from a blockbuster-dependent world to a blockbuster-capable world. We're going to plan for what we know we can deliver, and we're going to make the most of the great surprise," said Witty.

Investors remain skeptical that launching several smaller products each year will be a satisfactory replacement for lost blockbuster revenue, at least in the short term. While describing the new strategy as "seeming sensible," Deutsche Bank analysts think it will be some time before the results are seen. "Greater R&D productivity from a more entrepreneurial, efficient approach will likely take years to have a measurable impact on revenues," they said.

Sarah Houlton is Pharmaceutical Executive's global correspondent. She can be reached at sarah@owlmedia.co.uk