GSK Hire From Pfizer Signals R&D Will Continue to Shrink

(MoneyWatch)  GlaxoSmithKline appointed Ellen Strahlman as it's new chief medical officer, and a perceptive post over at IN VIVO discusses the meaning of the move. (That's her LinkedIn photo.) Her previous job was as Pfizer's vp licensing and worldwide business Development. IN VIVO asks:

With so many top brass at GSK -- including now the CMO -- trained to look for products outside GSK's own pharm system, what's the importance of internal R&D to GSK?

This answer is offered:

No one is suggesting that [CEO Andrew] Witty wants to jettison GSK's internal R&D -- at least for now. But the structural changes that have already been announced and this most recent appointment of Strahlman to CMO suggest that more and more business as usual at GSK will also come with an external focus.

I'd say that's an understatement. The numbers suggest that GSK R&D is shrinking, will continue to shrink, and that Witty is keen to outsource as much of GSK's R&D as possible.

Look at recent events. The company announced today that it was reorganizing its cancer research, centralizing it in a single team under Paolo Paoletti, svp oncology R&D.

Such moves tend to eliminate redundancies and overlapping jobs. The elimination of GSK R&D jobs has continued apace this summer, as I noted a few weeks ago. GSK R&D staffers continue to worry about their jobs, as you can see in this bulletin board thread, and in the comments section here.

The centralization of R&D, the layoffs and the appointment of Strahlman are potentially much more dramatic than IN VIVO suggests. As Motley Fool points out, R&D spend at GSK is actually falling right now -- down 3.4% -- while its rivals' spend is rising.

In addition, Witty (pictured) said in July that GSK would enter fewer drugs into its phase III pipe:

The best way to attack attrition in Phase III is don't put drugs into Phase III which have liabilities. So we are strengthening our gateways into Phase III to make sure that we only put into Phase III product we believe truly unencumbered with liabilities going forward.

Witty went on to describe those hurdles. Chief among them is an internal R&D investment board to which scientists must now apply for funding:

The Board is constituted not just by GSK people, but by people who run venture capital funds on the outside of the Company, from biotech CEOs from outside of the Company and from people who were formerly in the customer environment of our world.

So this is an extremely objective mechanism. And I can tell you, this Board has already started to meet and review, and they don't pull any punches when people come in and look at what they're seeing, good or bad. And that is important, because we need to know early whether or not we're doing the right thing. So that is new and it is different, and it is very disciplined and it is very focused.

We then have the reimbursement panels, because you can do those first things. So, okay, you believe you're going in the right direction in science. You believe your Discovery Board buys the theory, they buy the team. Real question then is, okay, you go through it all, it gets approved. Is NICE going to pay for it? Are the Germans going to pay for it? Are the managed care companies going to pay for it?

So what we have now done is we brought heads of reimbursement authorities into ad hoc reimbursement panels into the Company, where, before we put drugs into Phase III, we now disclose to them what we believe those drugs will do if they succeed, and we get their feedback. And no other company does that.

Despite all the extra hurdles, layoffs, centralization and budget shrinkage, Witty is expecting more new drugs to be launched by GSK. Not blockbusters, but a more voluminous stream of smaller drugs that will get the company off the boom-and-bust rollercoaster.

More drugs from a smaller R&D staff? Here's the catch: They won't be coming from GSK. They'll be bought in deals with outside companies. GSK has announced a string of small deals recently, such as this one with Cellzome, this one with Valeant, and this one with Sirtris.

So, if you're in R&D at GSK right now and you're wondering what your job is going to look like in the future, the answer is that it's at another, smaller company -- thus the hiring of licensing expert Strahlman from Pfizer