Pharmaceutical giant GlaxoSmithKline recently announced a re-org in the company to split its priorities in R&D on one side and consumer health on the other (with rumors that it may sell off its dermatology business).
On a call with analysts, GlaxoSmithKline was asked how its research capacity could and would expand, and whether there more acquisitions planned. While https://www.gsk.com’s CEO Emma Walmsley was eager to talk about her plans, she was mum on potential M&A targets.
Company Overhauls R&D Philosophy
GlaxoSmithKline has sought to blanket its R&D in new technologies, with news that it will devote more efforts in cancer drugs, specifically with its anti-BCMA properties. The new therapy attaches to tumor cells, specifically for treating patients with multiple myeloma (MM) and chronic lymphocytic leukemia (CLL).
Walmsley signed a deal with 23andMe in the summer of 2018. The DNA testing firm now is expanding rapidly into developing and out-licensing its own drugs. CEO Walmsley told the press that GlaxoSmithKline and 23andMe had selected their first drug target and expected to kick-start a clinical trial by the end of the year. GlaxoSmithKline agreed to the $300 million deal and is now seeing some tangible effects.
Walmsley said at the time that a big motivator for the deal was to bolster GlaxoSmithKline’s R&D productivity, primarily by providing genetic data as a way to eventually reach new and better trial participants. The 23andMe transaction also meshes with GSK’s venture with Verily, Alphabet’s life sciences arm, which is working on bioelectronics.
New R&D Head Tapped to Bring About Change
GlaxoSmithKline R&D lead Hal Barron told analysts that the company’s R&D capabilities could be categorized into several areas: technologies such as AI/ML [artificial intelligence/machine learning], functional genomics, human genetics and cell therapy programs. Barron was brought on in January 2018 from his position as head of R&D at Google-funded Calico, to turn around GlaxoSmithKline’s declining R&D efforts.
When Barron announced the new strategy in 2018, he said a new focus by GlaxoSmithKline would necessitate a shift within the company’s R&D culture. That move was to include collaborations with external partners, as well as the hiring of new talent. Layoffs were also planned, and indeed, the company cut roughly 250 jobs in its Collegeville, PA location, as well as “a small number” at its facility in Stevanage, UK. The two facilities are GlaxoSmithKline’s two main R&D centers.
This announcement came on the heels of another round of job reductions announced in September 2018, when GlaxoSmithKline laid off approximately 550 people in its U.S. commercial pharmaceuticals business, including about 100 marketing, sales, and support staff based at the Navy Yard in the Philadelphia metro area.
After a $5 billion buyout of Tesaro in late 2018 to boost its cancer drug portfolio, Walmsley was mum on the company’s potential M&A targets in 2020. She did note that the top priority at GlaxoSmithKline was to continue to strengthen the pipeline, both organically and inorganically.
The new direction of GSK’s portfolio now has a priority on innovation and moving towards producing a pipeline of transformational medicines, again concentrating efforts on immunology, genetically validated targets, and finding platforms and technologies that amplify its science.
The rumored break-up of GlaxoSmithKline appeared to be coming to fruition as news of the demerger has cost estimates running as high as $3.1 billion. It would rank as one of the most expensive corporate splits to date.
In early 2020, GlaxoSmithKline said that it planned to spin off its consumer health joint venture with Pfizer when the deal was signed. And now the company has officially begun its two-year move toward that split—which again, some insiders say will take its prescription dermatology section with it.
The company said in its full-year earnings that it would divide into two companies: one R&D-focused biopharma company and the other a company focused on consumer health.
In 2019, GlaxoSmithKline reported sales of $580 million, an increase of 3%. But the company has felt pressure for years from some of its largest shareholders, who said the company’s underperformance was driven by retaining the slow-growing, but dependable, consumer health division under the same umbrella as the more dynamic, but riskier, drug discovery efforts.
Other Pharma Giants Doing the Same
Just as the volume of mergers and acquisitions last year hit the highest level in a decade, big pharma companies other than GlaxoSmithKline are also planning to get smaller and spin off some units into separate entities.
Merck & Co also has plans to demerge, and Astrazeneca has been quickly selling off non-core assets for the past few years. Merck & Co. says that it will divest its women’s health, legacy brands, and biosimilars businesses into a new company.
Some in the industry see this as a new trend, as the Chicago-based Abbvie which just completed a deal to acquire Allergan, is rumored to sell off certain assets. Some anticipate that its medical aesthetics business will be separated, a move that the company has been pressured to make by its shareholders.