980 Great West Rd. Brentford, Middlesex TW8 9GS, UK
Tel: (44) 020 8047 5000 Fax: (44) 020 8047 7807
* Decline based on local currency (GBP)
|Top Selling Drugs
|Lamictal||epilepsy, bipolar disorder||$2,196||+20%|
Account for 63% of total pharma sales, same as in 2006.
Boy, am I glad I’m not in Andrew Witty’s shoes. Sure, the pay must be great; look at the package that his predecessor, J.P. Garnier, received on the way out of GlaxoSmithKline. (The shareholders sure did!) Still, between the patent expirations and the Avandia nightmare, Mr. Witty has some tough times ahead and some thorny decisions to make in his first year as chief executive officer.
Tapped to succeed Mr. Garnier in October 2007, Mr. Witty was in the role of president, Pharmaceuticals Europe at the time of his CEO nomination. Mr. Witty, 43, has been with the company since the age of 21, so he must’ve seen a lot of ups and downs.
It’s currently a “down.” GSK’s 2007 revenues show a 4% uptick in our charts, but that’s only because I insist on converting everything to dollars. In constant currency (the Great Britain pound, in this case), GSK posted a 4% drop in sales. Generic competition for drugs like Coreg (-25% in GBP), Wellbutrin (-41%) and Zofran (-75%) pummeled GSK’s revenues in the U.S. Add (or subtract) a 32% loss in Avandia revenues, and you’ve got the makings of a crisis.
The Lowe Down: GSK
GSK has suddenly started looking a lot less stable than they used to. The company took a real torpedo when Avandia sales dried up suddenly over safety concerns, and this is forcing them to make some painful and expensive moves. These might well have been coming eventually no matter what, but now they’re on a particularly disruptive timetable. They’ve been spending money at drunken-sailor rates, although presumably with a bit more forethought: witness that $720 billion dollar deal for Sirtris, which is either an act of genius or one of desperation, depending on who you talk to. This spending goes on while costs (for which read “head count”) are being cut hard at home. Something had to be done, that’s for sure but is there really enough external research to replace what they’ve shed? The problem is, it’s going to be years before we can say for sure that this was the something – which, when you think about it, is one of the single toughest things about running a drug company.
The company posted another 4% drop in GBP in 1Q08, driven by the same factors. The year-to-year drop in Avandia sales was enormous, but that’s an unfair comparison, since Avandia’s heart attack issues hadn’t arisen by 1Q07. A better measure might be comparing 1Q08 to 4Q07: the drug dropped 20% in sales, down to $380 million.
Good thing Advair’s going gangbusters, at $7.0 billion in 2007! I’m nervous about a company’s lead product selling almost 3.5 times more than the #2 product (Lamictal sales were $2.2 billion in 2007), but Avandia would have been slotted right in the low-to-mid-range between the two.
GSK contends that the number of Avandia scrips has stabilized/bottomed out. As outgoing chief executive J.P. Garnier put it in his 1Q07 meeting, “We have stopped the bleeding.” Between that and a June 2008 trial report indicating no increased heart attack risk among Avandia users, GSK is hoping for a rebound for its former #2 drug.
So, like the rest of the companies on our list, GSK needs to get new products rolling ASAP. The company had several U.S. approvals for new products in the last year, but one was a line extension for a product that went generic (Requip XL) and another was a combo with an existing drug (Treximet for migraines). GSK did get an NCE approved in the past year; Hycamtin capsules (lung cancer) were cleared for marketing in the U.S. in October 2007. GSK is waiting for word on another NCE, Promacta (short-term treatment of chronic idiopathic thrombo-cytopenic purpura (ITP)). On May 2008, an advisory committee did voted 16-0 that Promacta had a favorable risk-benefit profile for the indication, but the FDA bumped its decision of Promacta in June an additional 90 days so it could further review the NDA.
The company has seen several approvals among vaccines. The company gained EU approval for its HPV vaccine Cervarix in September 2007, allowing it to begin competing with Merck’s Gardasil. In June 2008, the UK’s Department of Health selected Cervarix as its vaccine of choice for its national HPV immunization program. GSK submitted the vaccine with the FDA in March 2007 and received a “complete response” letter from the agency nine months later. In June 2008, GSK announced that it will submit new efficacy study data in the first half of 2009, with an FDA decision expected within six months of that submission.
Target: Sirtris Pharmaceuticals
Price: $720 million
Announced: April 2008
What they said: "Through the acquisition of Sirtris, GSK has significantly enhanced its metabolic, neurology, immunology and inflammation research efforts by establishing a presence in the field of sirtuins."
Target: Reliant Pharmaceuticals
Price: $1.65 billion
Announced: November 2007
What they said: "The addition of [non-statin cholesterol drug] Lovaza to the GSK portfolio adds a new driver of sales growth in the U.S. business. It represents a strong strategic fit, complementing Coreg CR . . . and adds to our growing profile in the cardiovascular disease area."
—Chris Viehbacher, President, U.S. Pharmaceuticals, GSK
The EU has been kinder to GSK’s vaccine submissions of late. In May, the European Commission approved Prepandrix, GSK’s “bird flu” pre-pandemic vaccine. A pandemic vaccine, which is produced once a pandemic is declared and targets a specific strain of flu, requires four to six months of lead time; a pre-pandemic like Prepandrix is based on currently circulating viruses and can boost immunity before a pandemic can take off.
The company is also awaiting EU approval for Synflorix, a 10-valent vaccine to protect children against invasive pneumococcal disease and bacterial respiratory infections. GSK filed for approval in January 2008.
It’s not like GSK got zero good vaccine news from the FDA this year. In April 2008, the agency approved Rotarix, a two-dose vaccine for prevention of rotavirus gastroenteritis in infants. The product can be given to children earlier than any other treatment for rotavirus, allowing them to complete treatment by four months of age.
In this year’s recurring storyline, a multi-billion dollar restructuring is one of GSK’s strategies for dealing with its loss in revenues, the slow approval/acceptance of line extensions, and the unpredictability of late-stage trials. The company announced its new Operational Excellence plan in October 2007. It’ll cost $3.0 billion to implement and is intended to yield $1.4 billion in savings by 2010. The announcement didn’t give any specific word on firings, but the company’s financials indicate that the new plan will include some shutdowns:
“In manufacturing, GSK will reduce the overall number of sites operating in its network and simplify processes and site activities to reduce overcapacity. The Group will also continue to seek opportunities to outsource the manufacturing of existing products and for low-cost sourcing of materials, whilst focusing its capability on new products.”
The retooling has also led GSK to shed R&D jobs. I’m somewhat conflicted over that, in general. On one hand, I feel that R&D is the lifeblood of a pharma company and that trimming back that area signifies more serious problems than cuts in manufacturing or sales. On the other hand, I’ve long contended that R&D doesn’t scale; just because your R&D budget is double that of a competitor, it doesn’t mean that you’re going to generate twice as many new compounds.
So, if I’m being intellectually consistent, I have to say it’s fair game to rationalize the R&D budget and look at selective cuts in labs around the world. GSK’s head of drug discovery recently remarked that the company is trying to get more “biotech-like” in its approach.
Every major pharma says this every few years; I’ve concluded that management at major pharmas (I’m not singling out GSK) are either oblivious to the truly endemic problems with scale, or they’re just lying to shareholders. Or both!
I’m not sure what it says about GSK’s faith in R&D, but while those internal cuts have been going on, the company has rolled full-steam ahead on external collaborations. Here’s a partial list of deals in the past year with development companies (note that all deals also include royalties for commercial products):
- Amira Pharmaceuticals — respiratory/CV disease, $425 million in milestones
- Mpex Pharmaceuticals — antibiotics, $15 million upfront, $250 million in milestones per candidate
- Regulus Therapeutics — microRNA for RA and inflammatory bowel disease, $20 million upfront, $144.5 million in milestones for each of four drugs
- Santaris Pharma — viral diseases, $8 million upfront, $140 million in milestones for first four compounds + royalties, $122 million in milestones for hepatitis C drug
- OncoMed - stem cell treatments for cancer, $1.4 billion in potential milestones
- Galapagos — infectious disease, $7 million upfront, $190 million in development milestones per candidate, $240 in sales milestones (in addition to royalties)
- Anacor Pharmaceuticals — infectious disease, $22 million upfront, $331 million (max.) in milestones per candidate
- Sepracor — Lunivia insomnia (outside North America & Japan), $20 million upfront, $155 million in commercial milestones
- Targacept — CNS, $35 million upfront, $1.5 billion in total milestones for five therapeutic fields
- Tolerx — diabetes, $70 million upfront, $155 million in development costs, $525 million in milestones
- Synta Pharmaceuticals — oncology, $80 million upfront, $885 million milestones for one Phase III candidate
Given these alliances, the recent acquisitions of Sirtris and Reliant (see sidebar), and internal cuts and restructuring in R&D, the new GSK looks like it’s rethinking drug development. I think the biggest factor in staying ahead of #3 Sanofi-Aventis next year is if the GBP beats the Euro in thrashing the U.S. dollar.
For the full profile, including pipeline and patent information, download the PDF.