GSK Business Projects Group

Sachin Patel – GSK Business Projects Presentation Wednesday, April 12, 2023

To R&D or not to R&D?

Presented to GSK Business Projects Group

Wednesday, April 12, 2023


A Push for ChangeA Push for Change

“Pharma Faces Grim Prognosis" – WSJ 2007

“The Next Chinese Outsourcing Wave: Drug Development” – IBD 2007

“Big Pharma Spends More On Advertising Than Research

And Development, Study Finds” – ScienceDaily 2008

“Investor chief questions role of Big Pharma in development of

medicines” – The Times 2008


Modify the model Modify the model

PROS

+CONS

-

How would you analyze this proposal for GSK?


Big PharmaBig PharmaGlobal Pharmaceutical Leaders

Twelve Months Ended December 31, 2007

In $ Millions

(Source Company Annual Reports)

Company Revenue R&D

Pfizer 48,418 8,089GlaxoSmithKline 38,466 6,645

Sanofi-Aventis 38,452 6,219Roche 32,402 6,339

AstraZeneca 29,559 5,162Novartis 25,477 6,430

Johnson & Johnson 24,866 7,680Merck 24,197 4,883Wyeth 22,400 3,257

Bristol-Myers Squibb 19,348 3,282Eli Lily 18,634 3,487

TOTALS 322,219$ $61,473


RevenuesRevenues

2007 Revenues: $712 Billion

Revenues 2007 - In $ Millions

Rest of the

Industry

$389,781

55%

Big Pharma

$322,219

45%

$712 Billion in Global Revenues


Research and DevelopmentResearch and Development

2007 R&D Spend: $95 Billion

R&D 2007 - In $ Millions

Rest of the

Industry

$33,580

35%

Big Pharma

$61,473

65%

$95 Billion in Global R&D Spend


Cross Roads Cross Roads

• Organic vs. Inorganic Growth

• Management Changes

• Patent Cliff

• Increases in efficiency

• Appease all stakeholders

Does a silver bullet exist that will fix Big Pharma?Does a silver bullet exist that will fix Big Pharma?


Big Pharma – 21Big Pharma – 21stst Century Dynamics Century Dynamics

DriversDriversDemographicsBiotechnologyEmerging MarketsInnovation

ResistorsResistorsDrug DiscoveryPatent ExpirationsGenerics

OpportunitiesOpportunitiesTherapy NichesLifestyle DiseasesUnmet NeedsOutsourcing

ConcernsConcernsDrug SafetyDrug PricesIndustry Credibility


Back to the HeadlinesBack to the Headlines

“Pharma Faces Grim Prognosis" – WSJ 2007

• Lengthy process to develop a new chemical entity• High R&D costs• Decreasing productivity• Inexperienced decision makers• Nightmare of complexity



“The Next Chinese Outsourcing Wave: Drug Development” – IBD 2007

• R&D outsourcing of $24 Billion in 2007

R&D vs. R&D Outsourcing(In USD Millions)

24,000 27,600 31,740 36,50141,976

48,273

95,000 98,800 102,752 106,862 111,137 115,582

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2007 2008 2009 2010 2011 2012Year

R&DOutsourcing

R&D



“Big Pharma Spends More On Advertising Than Research And

Development, Study Finds” – Science Daily 2008

• US Pharmaceutical companies spent $57.4 Billion on marketing of products

• US Pharmaceutical companies spent $31.5 Billion on developing products

24.4% vs. 13.4%



“Investor chief questions role of Big Pharma in development of medicines”

– The Times 2008

Q: Do you have economies of scale in R&D?

A: It's not clear but one of the fundamental ways that companies create value for shareholders is strong R&D.

Q: Is bigger better?

A: Maybe you have to split it up into smaller parts.


Drug Development ProcessDrug Development Process

SOURCE: PhRMA Industry Profile 2008


The Cost of a BlockbusterThe Cost of a Blockbuster

Source: Bain Drug Economics Model 2003


R&D Productivity DecreasingR&D Productivity Decreasing

New Drug Applications (FDA)

0

20

40

60

80

100

120

140

160

1990

1991

1992

1993

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Year

NDAs Approved

New Molecular Entities

NDAs Rec'd


Does GSK need to worry?Does GSK need to worry?

• Advair Patent Expiry 2010

• 34 product opportunities in Phase III or registration

• 157 projects in clinical development

• Avandia sales decline

GlaxoSmithKline2007 Sales by Therapeutic Category

Respiratory 26%Central Nervous System 18%Anivirals 16%Metabolic 8%Vaccines 10%Cardiovascular & Urogenital 8%Antibacterials 7%Oncology & Emesis 2%Other 5%

Total 100%

Yes!


Forcing ChangeForcing Change

“Shake-up at GSK aims to speed new medicines” – FT 2007

• Expand external partnerships • Reduce the number of experiments it applies during drug

development• Cheaper and faster• Smaller is better

ABN AMRO - Research Report 2008

• Called for reform of R&D function • Questioned effectiveness of the Centers of Excellence in Drug

Discovery (CEEDD ) formed in 2001


Five Forces Analysis – Big PharmaFive Forces Analysis – Big Pharma

Competitive Rivalry

• First mover advantage with patented drugs• Economies of Scale

HIGH

Power of Buyers

• High switching costs• Substitutes increasing• Price sensitive

MEDIUM

Power of Suppliers

• Low costs of inputs• Presence of many substitute inputs• Low switching costs

LOW

Threat of Substitutes

• Generics• Biotechnology• Focus on Prevention

MEDIUM

Barriers to Entry

• High R&D, Manufacturing & Marketing Costs• Patent protection

HIGH


SWOT - GSKSWOT - GSK

StrengthsStrengths

Marketing strength in major geographical and

therapeutic areas Financial Strength – Strong Cash and Asset Position, and Access to Debt/Equity Instruments R&D expertise with broad therapeutic coverage New management Growing consumer products business

WeaknessesWeaknesses

Large size Discontinuation of products in later stages of

development Patent Expirations Decline in revenues Geographic focus

OpportunitiesOpportunities

Decreasing development time through favorable R&D

collaborations and internal efforts Co-marketing and partnership agreements Outsourcing of R&D and manufacturing Eliminating redundancies Demographics

ThreatsThreats

Regulation Litigation Rising R&D costs Generics Competition from Chinese and Indian companies


If the change is made?If the change is made?

PROS

• 100% focus on profit generation

• Significant cost reductions

• Quickly change strategies

• Increased transparency

• Reduced regulatory burdens

• Higher returns to the shareholder

• Expansion of partnerships

CONS

• Increased reliance on others

• Reduction of potential future revenue streams

• More cyclicality

• Innovation removed

• Socio-Political backlash

• Sense of failure


A Path for GSKA Path for GSK

• Focusing R&D efforts and commercial capabilities towards a common goal

• Moving away from a fully integrated business model

• Emphasizing customer

solutions

• Making business units accountable for their actions


QuestionsQuestions

??

GSK Business Projects Group

Documents

gsk business projects

rd outsourcing

global rd

drug development ibd

development of medicines

headlinesbig pharma

drug discovery ceedd

illions big phar