GSK's hunt for more profitable drugs may come at a cost
Iain Withers
Updated
GSK has put its rare diseases business up for sale - Andre Brookes / Corbis
"I hate to see big companies like GSK leave this space,” says Dr Rick Thompson, boss of rare diseases charity Find a Cure. “We hope they come back very soon.”
Dr Thompson is talking about the decision by the UK’s biggest drugmaker to put its rare diseases business up for sale as part of a £1bn cost-cutting drive. Emma Walmsley, the company’s new chief executive, announced the cuts a fortnight ago as part of her first set of interim results, saying they were needed to give GlaxoSmithKline “more edge” and to divert vital research cash to more commercially attractive drug development programmes.
Find a Cure represents patients with rare diseases in Britain – estimated to affect 3.5m people at some point in their lives. There are only a handful of patients for each condition – they’re defined as affecting fewer than one in 2,000 people and include rare genetic diseases of the blood, heart and bones – so the charity brings patients together with doctors and drug companies to drive development of treatments for these illnesses.
“I hope it’s not a trend we see more broadly,” Dr Thompson says of GSK’s move. Walmsley’s rationale for the cuts – which also include offloading 30 drug development programmes for conditions such as diabetes and heart failure – is that GSK needs to sharpen its focus in R&D, an area that has long underperformed its peers.
It marks a radical departure from Sir Andrew Witty, her predecessor, who she replaced in April and who took a broad church approach to R&D. Funds will instead focus on four areas – respiratory, HIV, oncology and immuno-inflammation. Investors have welcomed Walmsley’s restructuring, saying GSK has much to gain commercially. But what might be lost when companies turn their back on tough-to-treat diseases?
GSK chief executive Emma Walmsley has announced a £1bn cost-cutting driveCredit: AFP
GSK has wasted no time in marketing its wares to potential investors. It is understood that early documentation for the disposals has already gone out, with the sales expected to attract interest from trade buyers, restructuring experts and private equity.
Other operations up for sale include 130 drug brands with revenues of some £500m. Meanwhile, in its consumer division, it is scrapping the century-old malted drinks brand Horlicks in the UK and making 320 job cuts. Julie Simmonds, analyst at Panmure, believes there will be no shortage of potential buyers for GSK’s drug assets, but warns “the cash up front might not be there” and purchasers may prefer longer-term deals structured around royalties.
The disposals may make sound business sense but the potential sale of rare diseases, in particular, is being seen as emblematic of a more cautious approach being adopted by Walmsley. John Rountree, of pharmaceuticals consultancy Novasecta, notes GSK spends a lower proportion of its total pharmaceuticals revenue on R&D, at 15.4pc, than its main FTSE 100 rival AstraZeneca’s 27.6pc.
“It all emphasises the importance the new GSK executive team puts on stability and long-term performance, rather than high-risk and high-reward R&D,” he says. “It does not fit as well with a view that GSK will be a magnet for developing game-changing pharmaceutical R&D innovation.”
Find a Cure argues it is short-sighted for drugs firms to neglect rare diseases. It points out that while rare diseases affect few patients, a focus on developing cures for these unusual maladies can lead to wider breakthroughs. For instance, the science behind statins was discovered by clinicians investigating the rare genetic illness familial hypercholesterolaemia (FH), which leads to the build-up of bad cholesterol in the blood and increased risk of heart attack.
Statins today help not only FH patients, but millions of people with high cholesterol lower the risk of heart attacks. Rare diseases generally have genetic causes, so the treatments tend to be costly gene therapies that alter the patient’s genetic code. GSK has been open about the commercial challenges it has encountered in this field. For instance, its pioneering gene therapy, Strimvelis, for children with ADA severe combined immunodeficiency – sometimes known as “bubble baby” disease – was first approved for sale in Europe in May last year.
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But it has only been used by two patients, with just a further two lined up. GSK stresses the cell and gene therapy platform behind its rare diseases pipeline will be retained and applied to its retained research fields, including oncology. Speaking to reporters at the time of GSK’s interim results two weeks ago, Walmsley acknowledged that the potential rare diseases disposal would have to be sensitively managed.
"We need to navigate our exit extremely well from the patient point of view, and make sure that we are thoughtful about how we give those assets the best chance,” she said. Despite the GSK setback, Dr Thompson says rare diseases remains a “really exciting area”.
Some of GSK’s rivals, including Shire and Sanofi, are ramping up investment. Treatment prices are high, running to hundreds of thousands of pounds, making it a potentially lucrative area. But patient numbers are low, making this a difficult commercial model for both drug companies and health providers. “I hope GSK’s decision raises awareness,” Dr Thompson says. “There needs to be a concerted effort to work out how to pay for gene therapies.”
One company engaging with this thorny issue is US biotech Bluebird, one of the world’s foremost rare- diseases businesses. It is in talks with European authorities, including Britain’s medicines commercial authority NICE, about launching its pioneering gene therapies on this side of the Atlantic, even before its home market. Its treatments for conditions like severe sickle cell disease give patients a bone-marrow transplant and, in effect, a new immune system.
But the Nasdaq-listed firm says it needs a different commercial model in order to launch. “It’s a one-time hit, not long-term management of a chronic condition,” Bluebird’s Richard Morgan says of the company’s therapies. “We believe there should be some mechanism for paying over time to reflect that long-term benefit.”
He has sympathy for GSK’s withdrawal from the field: “It’s hard science and it’s going to be hard commercially.” Walmsley, for her part, has said the restructuring is much-needed to put “science very much at the core of our business” and to “strengthen the pharma pipeline”.
GSK refutes any suggestion it is turning its back on innovation. The company points to cutting-edge treatments in its drugs pipeline, including danirixin for the severe lung condition chronic obstructive pulmonary disease, and long-acting, two-drug regimens in HIV. There are also promising assets in oncology and immuno-inflammation, but at an earlier stage.
Axed | Clinical drug programmes GSK is ditching
Walmsley said the firm would also consider acquisitions to add to its pipeline where necessary. On Friday the firm was linked to a potential bid for Nasdaq-listed drugs firm United Therapeutics, which owns innovative treatments for pulmonary arterial hypertension and has a market value of $5.5bn (£4.2bn). But it could face stiff competition from the likes of Gilead and Novartis.
Analysts have welcomed the refocusing at GSK. “A company like GSK should play to its strengths and Emma Walmsley has clearly understood the importance of its heritage and is willing to grasp the nettle to make the necessary changes,” says Mick Cooper of Trinity Delta. Novasecta’s Rountree thinks GSK’s sale of rare diseases “will ultimately be good for patients”.
He explains: “Investors that are more interested in high-upside with risk can take on this unit and give it more focus and space than is currently possible under GSK.” Charities like Find a Cure will certainly hope so. But the wider tension revealed between finding cures for uncommon diseases and making profits laid bare by GSK’s move is unlikely to be resolved so easily.
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