#3 GlaxoSmithKline

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

Headcount	103,166
Year Established	2002
Pharma Revenues	$33,976	8%
Total Revenues	$39,439	8%
Net Income	$6,074	21%
R&D Budget	$5,710	7%

Drugs Approved
Drug	Indication
avandaryl	type 2 diabetes
boniva/bonviva	postmenopausal osteoporosis
wellbutrin XL	depression, seasonal affective disorder
arranon	acute lymphoblastic leukemia and lymphomas
hycamtin	small cell lung cancer second-line therapy
seretide/advair	asthma – non-CFC inhaler
ariflo	COPD
menitorix	Neisseria meningitis group C disease and hemophilus influenza type b
hycamtin	cervical cancer second-line therapy

Drugs Pending Approval
Drug	Indication
entereg/entrareg	post-operative ileus
coreg CR	hypertension & congestive heart failure
altabax (retapamulin)	bacterial skin infections
relenza	influenza prophylaxis
requip modutab/XL 24 hour	Parkinson’s disease – once-daily controlled release
trexima	migraine
seretide	asthma (initial maintenance therapy)
priorix-tetra	measles, mumps, rubella and varicella
rotarix	rotavirus induced gastroenteritis
flu pandemic	influenza prophylaxis

Drugs in Phase IIB and Beyond
Drug	Indication
arixtra	treatment of acute coronary syndrome
avandamet XR	type 2 diabetes – extended release
avandia+simvastatin	type 2 diabetes
chlorproguanil, dapsone + artesunate	treatment of uncomplicated malaria
etaquine	malaria
avodart+alpha blocker	benign prostatic hyperplasia – fixed dose
avodart	reduction in the risk of prostate cancer
entereg/entrareg	opioid induced GI symptoms
mepolizumab	hypereosinophilic syndrome (also asthma and nasal polyposis)
406381	acute & chronic pain
lamictal	bipolar disorder – acute treatment
lamictal XR	epilepsy – once-daily
requip extended release	restless legs syndrome
eltrombopag	thrombocytopenia
tykerb/tycerb	breast cancer (also renal, head and neck cancers)
hycamtin	small cell lung cancer second-line therapy – oral formulation, ovarian cancer
allermist/avamys	allergic rhinitis
seretide/advair	COPD – mortality claim
globorix	diptheria, tetanus, pertussis, hepatitis B, hemophilus, influenza type b disease, Neisseria meningitis groups, A & C disease prophylaxis
streptorix	S. pneumoniae prophylaxis for children
cervarix	human papilloma virus infection
fluviral	influenza prophylaxis
simplirix	genital herpes prophylaxis
darapladib	atherosclerosis

Top Selling Drugs
Drug	Indication	Sales	(+/- %)
seretide/advair	asthma, COPD	$5,468	22%
avandia/avandamet	diabetes	$2,420	19%
lamictal	epilepsy, bipolar disorder	$1,546	25%
zofran	oncology/emesis	$1,524	9%
wellbutrin	depression	$1,345	-2%
imitrex	migraine	$1,269	2%
valtrex	herpes	$1,265	21%
augmentin	antibacterial	$1,213	-7%
flonase	respiratory	$1,194	13%
flovent	respiratory	$1,162	3%
paxil	central nervous system	$1,120	-43%
combivir	antiviral	$1,061	2%
coreg	heart disease	$1,043	32%
serevent	respiratory	$601	-6%
trizivir	antiviral	$552	-7%

Account for 67% of total pharma sales, down from 68% in 2004.

PROFILE

GlaxoSmithKline slipped to #3 on this year's list of Top Companies, a victim of Sanofi-Aventis' change in accounting procedure rather than its own drug sales. GSK posted solid results in 2005, with 8% revenue growth overall and a new billion-dollar drug in Coreg. The company's top three products posted 19%+ or higher growth in 2005, and continued double-digit rises in 1Q2006 (Advair +12%, Avandia +24%, and Lamictal +14%).

In fact, GSK owns this year's record with most billion-dollar sellers, with 13 products in that category (thanks to a slight boost from the 1:1.82 exchange rate with the GBP). This broad base is critical, because generics have pounced on GSK's products in recent years, and that trend isn't slowing down. Paxil is likely to fall out of the billion-dollar ranks in 2006, and Augmentin may not last the year, either, thanks to generics.

Wellbutrin also saw its patent expire in late 2004, but the XL version of that antidepressant is still going strong (up 35% in 1Q2006 to $338 million), and may receive approval in several EU territories. Wellbutrin XL also received FDA approval for a seasonal affective disorder indication in June 2006.

Flonase was hit by generics in the U.S. in 1Q2006, and will also likely fall out of the billion-dollar category. This drop may be mitigated somewhat by GSK's supply agreement with Par Pharmaceuticals for a generic Flonase.

Still, all of this points out the fact that, the bigger (and broader) you are, the bigger the target on your back. The way to fight it is to keep producing (and marketing) more drugs. GSK's drug pipeline is progressing well, with several products filed for approval in recent months: Cervarix (cervical cancer vaccine; EU); FluLaval (influenza vaccine); Wellbutrin XL (depression; EU), and Hycamtin (a cervical cancer treatment approved a decade ago for ovarian cancer).

In addition, GSK has received strong results from a number of late-stage products—including its Herceptin competitor, Tykerb (breast cancer), Trexima (migraine), and Entereg (post-operative ileus)—and moved a number of products into Phase III, including an avian flu vaccine, pazopanib (renal cancer), casopitant (post-op nausea), and the bizarrely named eltrombopag (an oral platelet growth factor for idiopathic thrombocytopenic purpura). The company's oncology pipeline looks good, albeit not at Genentech's level yet.

ACQUISITIONS Target: Pliva’s Research Institute Price: $35 million upfront, $15 million in milestones Announced: February 2006 What they said: “This Centre of Excellence will strongly complement and enhance our specific expertise and commitment to the discovery of new chemical entities across several therapeutic areas through application of unique platform technologies.” —Allan Baxter, senior vice president of drug discovery, GSK Target: ID Biomedical Price: $1.4 billion Announced: September 2005 What they said: “With this acquisition, GSK continues to move forward to support the delivery of GSK’s broad pipeline of novel vaccines in North America.” —Jean Stéphenne, president of GSK Biologicals Target: Wyeth manufacturing plant (Marietta, PA) Price: Not disclosed Announced: September 2005 What they said: “We expect to develop new flu vaccine technology at our Marietta facility that we hope will enhance our future ability to rapidly produce flu vaccines for the nation in response to a pandemic. This new technology will complement our current egg-based flu vaccine manufacturing.” —J.P. Garnier, chief executive officer, GSK

Just the Vax

At the end of February 2006, GSK reported that it has 149 projects in clinical development, including 95 NCEs and 29 line extensions. The remaining 25 projects are vaccines. While GSK is working hard to develop new drugs, vaccine development has become a major focus for the company. Chief executive officer Jean Pierre Garnier contends that the company plans five major vaccine launches in the next five years, highlighted by Cervarix, which will compete with Merck's Gardasil. Some analysts contend that Merck's head start will leave Cervarix scrambling to make up share in a market that could reach $3 billion by 2010. The other major vaccine releases are Rotarix (rotavirus gastroenteritis), Streptorix (pneumococcal disease), a combo vaccine against meningitis, and an improved flu vaccine.

Preparing for "globalization's revenge" in a major flu outbreak is clearly important for GSK. In December 2005, the company completed the $1.4 billion purchase of ID Biomedical, a flu vaccine maker in Canada. That acquisition, combined with the company's July 2005 announcement that it will expand capacity at its Dresden flu vaccine site for $120 million, will by 2010 enable GSK to manufacture 150 million doses of flu vaccine annually.

In May 2006, GSK received a five-year, $274 million contract to advance its H5N1 vaccine and to develop cell-based production models for flu vaccine at the company's new facility in Marietta, PA. On the face of it, this sounds like good news, but it also contains the seeds of what could become a big problem with the new vaccine market.

Since GSK is one of several major companies pursuing a vaccine initiative, I may as well try to convey my misgivings about the field here. I'm all for disease prevention, and all  for developing new vaccines. I'm glad that GSK and Merck felt strongly enough in the financial viability of the HPV vaccine to each spend hundreds of millions (or more than a  billion, according to one claim) developing such an effective treatment. Similarly, I'm glad that companies with major bio-expertise are working at cell-culture modes of making flu vaccines in order to protect the world against the next pandemic.

THE LOWE DOWN I say a lot of disparaging things about pharmaceutical mergers, but looking at GSK almost makes me want to reconsider. They really do seem to have made a success out of theirs (after quite a bit of confusion and uncertainty, of course, which is one of the delightful things about any merger). One of the remarkable things about them is how they manage to stay out of the headlines, which is no small thing for a large pharma company these days. Advair, for example, just hums along quietly selling over $5 billion a year, but if you stopped 50 people on the street and asked them to list some big-selling drugs, how many would name it? But there's where the dark clouds start to appear, because 2006 will be the last full year that the drug is under patent protection. The company seems to have been good about funding R&D, but they're playing the same game as everyone else when it comes to results (for example, they might perhaps be regretting the amount that they've spent on nuclear receptors over the years). The way they've jumped on the chance to sell orlistat over-the-counter makes me wonder if they aren't getting a bit jumpy. I can't wait to see the ads for that one. —-Derek Lowe

However, I'm wary of the role of governments in the vaccine field. I'm afraid that, the more effective a vaccine any of these companies develop, the more likely they'll find governmental pressure to supply it at "volume" rates (which is to say, at prices so controlled the production cost is barely covered).

In fact, when the company announced the expansion of the Dresden flu vaccine site, the company's general manager in Germany, Dr. Thomas Werner, commented, "We hope, in the future, the German government will ensure that its market policies and pricing decisions reflect the substantial value created by pharmaceutical R&D and will continue to respect IP rights. GSK is encouraged by recent government steps towards improved dialogue on how to ensure Germany remains a leading healthcare environment, welcoming to pharmaceutical businesses. This dialogue is urgent and needs to be maintained."

Maybe I'm wrong about this. After all, Roche faced a huge backlash with its antiviral treatment Tamiflu last year, and that drug still managed to add $1 billion in sales in that span. The company contends that those five major vaccines will compete in markets that could reach $18 billion in value by the end of the decade. But at present, only a single vaccine, Wyeth's Prevnar (meningitis) has more than $1 billion in annual sales. So, in the process of developing innovative vaccines, these companies (and GSK seems to be foremost among them) need to develop a new business model for vaccines.

I wouldn't put it past them, but I'd also be wary of government intervention, especially when the interveners tell us to "think of the children."

Animalistic

Speaking of being wary, GSK's shareholders were threatened by knuckleheads in May 2006. Animal rights extremists who object to GSK's use of Huntingdon Life Sciences for animal testing services decided to send letters to individual shareholders, telling them to sell their shares in GSK or face having their personal information posted on the web.

As the linguistically challenged blackmailers wrote, "The only way to hold GlaxoSmithKline to it's [sic] PROMISE is to target it's [sic] financial vulnerability. We are therefore giving you this opportunity to sell your shares in GlaxoSmithKline. If you have any doubts over the effectiveness of this action then keep a close eye on the GSK share price and watch it plummet."

GSK got an injunction to protect its shareholders from this treatment, and there hasn't been any public act to follow up the letters. If you're interested in finding out how GSK's employees have been targeted by the animal rights movement, check out the congressional testimony sometime.

Regardless of GSK's use of animal testing, the company has developed a good oncology pipeline, with Tykerb in a position to siphon away market share in the breast cancer segment that Herceptin occupies (not that it's a very large portion of the total breast cancer patient base). Time will tell if the vaccine strategy is viable in the long term, but GSK's broad base of blockbuster drugs can give it room to experiment.

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