Will GSK’s Investment In External Research Pay Off?




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Video title: Will GSK’s Investment In External Research Pay Off?
Released on: February 03, 2009. © PharmaVentures Ltd
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As we go further into 2009 and the deals and mergers start to hot up, the question everyone wants an answer to is 'How will big pharma fill their pipelines?' Ad Rawcliffe, Senior VP WWBD and Finance at GSK, joined Fintan Walton in San Francisco to talk about the coming year and how GSK's partnering helps them to invest in science externally to compliment and strengthen their internal research.
The $2.7 billion fund and the key issues in negotiating deals with biotech companies.
Fintan Walton:
Hello and welcome to PharmaVentures business review brought to you by PharmaTelevision. We are here in San Francisco recoding a series of interviews with key companies both here in the US and from around the world. Hello and welcome to PharmaVentures business review here in San Francisco. On this show I have Adrian Rawcliffe, who is Senior Vice President of Business -- Worldwide Business Development and R&D finance at GlaxoSmithKline. Welcome to the show.
Adrian Rawcliffe:
Delighted to be here.
Fintan Walton:
And you play a key role obviously within GSK, you report to the Chairman of Research and Development, Moncef Slaoui, your responsibilities for all of the worldwide business development activities of GSK and that extends as being effectively the Finance Director for the Chairman of Research and Development at GSK which is a 2.7 billion pound budget, you sleep well at night?
Adrian Rawcliffe:
Well it is an interesting job because as well as the normal head of worldwide business development responsibilities and I've also yes got the financial management responsibilities for the R&D budget. But given the GSK's been so invested in external activities from the past decade and so much of our pipeline is externally derived then there is a certain synergy from not only doing the deals but also working out how we finance our R&D activities over the next few years.
Fintan Walton:
Right, so the key thing here is obviously is turning that 2.7 billion pounds into a productive pipeline, successful pipeline and clearly there is the internal research and the external research. So let's just look at the external research for the moment from a business development perspective, you know clearly every biotech company out there knows about GSK, and GSK would normally be on the list of companies which companies would approach. What do you see as the key issues that face GSK when it comes into trying to negotiate with deals with outside parties like biotech companies?
Adrian Rawcliffe:
So, I think GSK starts from a position of have been probably the most experienced pharmaceutical company in the negotiation and then the execution and the management of alliances with partner companies. And in that context I think there isn't that much that we haven't seen and that we haven't found a solution to it. So from sort of early stage drug discovery collaborations where we pioneered the option based approach to partnering all the way through to late stage licenses where we've done something like 50% more late stage licenses than any other pharmaceutical company. The experience that gives you means that most of the issues that you do encounter we found ways of solving with our partners.
Current tough financial climate and supportive role of GSK.
Fintan Walton:
Right, but I suppose in today's climate with biotech companies finding it more difficult to get finance, we now know that probably about 45% to 50% of companies have really short-term cash left in their pipelines, these are the companies that not only feed potential opportunities to GSK but to other pharmaceutical companies. How are you as GSK going to deal with these mounting issue that's gonna take place in 2009 and beyond?
Adrian Rawcliffe:
I think the first thing we have to recognize is the Drug Discovery and Development is a long-term business and it's a very risky business. So the issues that we as an industry as a sort of biotech ecosystem will face over the next few years are part of a continuum that will result in the development of these products to market and I think therefore your approach to it is to work with existing partners to see their way through the difficult times and also to recognize that not all biotech companies are created or in the same position and therefore your response to that needs to be tailored to those particular circumstances for example our recent investments in Anacor [PharmaDeals ID = 28537] and in Oncomed [PharmaDeals ID = 29192] are part of a continued support but we feel we need to give to our partners during this time.
Guidance to biotech companies for partnership with GSK.
Fintan Walton:
Right, so if I was a biotech company and I was looking to partner with GSK do I go straight to you or do I go to someone within the research and development or one of the sets, What guidance do you give to a biotech company?
Adrian Rawcliffe:
I think the most important thing it's to realize with GSK is that the last decade have given us a culture of partnering and a very good system for working out which partnerships we want to strike and then moving on those and the short answer is it really doesn't matter where you go in it all comes through essentially in the same process which is driven by a strategic therapy area and then developed and executed by business development in conjunction with R&D. The point that you come in should be relevant and we work very hard to make that, they come to me, they come to the Chairman of R&D and through our CEO. We also have an email address for, which is www.bd@gsk.com and everything that goes there also comes straight through to BD and we work on that.
Fintan Walton:
Right, so in the end it could lead to confusion isn't it? Or is there a system in there that allows you to actually find these and ensure that they do get successfully to the right person?
Adrian Rawcliffe:
There is and I would always say to somebody start your contacts at in the business development arena.
Fintan Walton:
Right.
Adrian Rawcliffe:
And that's usually a trusted way of getting through to make sure you get an efficient answer because often the answer is no or not yet and you want to get that answers as quickly as possible, the worst thing is that you get strung along by not being able to get to a definitive answer so that, that would get you there, more but -- I think it's important to recognize that the paths of deals in large companies are not cookie-cutter we don't have cookie-cutter deals. We work out a deal that makes sense for us and the partner and in doing so the root is from first contact through to deal should also not be a cookie-cutter approach. I think if you -- if you have a cookie-cutter approach you are setting yourself up not to see all the great opportunities that are around there.
Competitive landscape and issues of higher risks.
Fintan Walton:
Sure, I mean one thing that I think everybody would recognize is that big pharma in these different [ph] pipelines is got big issues coming through, it's not just only GSK that has -- has those issues coming up but that means it's a very competitive landscape within the biotech sector and -- and does that mean that for GSK things have to change, in another words what may have been acceptable you know a product reaching proof of concept for an example full proof of concept is always likely to get a deal but I've seen the deal proof of concept is right. But are you likely to take higher risks with products that are not yet a proof of concept as a result of this competitive landscape?
Adrian Rawcliffe:
I don't think it is all result of the competitive landscape. I think the critical thing is to work out which scientific bets you want to place in your portfolio and some of those will be more risky than others reflecting the stage but also the -- the level of confidence that one has in the science. I think however it's true that if you're doctor me too approach to your R&D and your in licensing activities then what you will end up is this the worst possible situation where you failed very late -- at the regulators where they say there is no distinction between this and what's already out there. And so actually what pharma has to do is work out how to strike the right balance of truly innovative products measured by the effect on patients and still maintain the risk level, the scientific risk levels so that everybody can produce a return.
Promoting internal entrepreneural zone.
Fintan Walton:
Right. So when we look at internal research and external research here one of the things obviously GSK has tried to promote over the years is internal entrepreneurial zone give the -- I suppose more junior people within your organization a chance to be entrepreneurial can that really truly work in a large corporation?
Adrian Rawcliffe:
Yes, I think it can. But I think it's a journey and GSK is I think at the forefront of that journey, so back at the merger we created the centers of excellence for drug discovery which was small by pharma industry standards but large by biotech standards. So 200 to 400 person integrated discovery units. In 2007 we conducted a review of where we think the science is leading us in the therapy areas that we are interested in. And on the basis of that we refocused our sets and also we created within each set a number of discovery performance units and these are much smaller 50, 60 person organizations integrated chemists and biologists and pre clinical scientist and clinical scientist together focused on a particular area for example muscle metabolismor HCV and with responsibility for taking product all the way through to clinical proof of concept so we have a 60% unit that very much more resembles the traditional private biotech headed up by somebody ahead of that. And the other thing that we did again trying to drive the entrepreneurial spirit was all of those DPU's and sets bid for the funds and were allocated a 3F part of money spend to invest in a particular area. When I say invest it's a carefully chosen word because it's not just internal it's also external so what we now is 28 discovery performance units each of which is focused on a very specific area out there looking for partnerships to help them open them in that portfolio.
Fintan Walton:
Right. so they are responsible, they can't just sort of lie, lie back their network is speaking and say well let be they get on with it, they've got to get on with identifying those opportunities and work with BD to execute them?
Adrian Rawcliffe:
So I've been a fan since I took over the head of BD and it's true as a characterization of GSK's approach to BD. BD is -- BD is not done by BD. BD is done by R&D by GSK from the CEO down to the lab bench [ph] everybody is has a partnership mind set. The function that BD does is we facilitate it and help execute on that but otherwise you end up with an organization that doesn't want the things that you business development department brings in and that's the worst possible scenario because doing the deal is great but managing the deal and working with the partner to deliver products is ultimately what is found
Functions of SR One the venture side of GSK and it's function and the co-investing opportunities with other venture capitalists
Fintan Walton:
Right, and the other thing before you took up your current position you also worked with SR One"
Adrian Rawcliffe:
Yeah.
Fintan Walton:
The venture side of GSK, just has that function changed in recent times or is it still doing very much what it did before?
Adrian Rawcliffe:
So recently Russell Gregg who was previously head of BD took over the responsibility for SR One and now reports directly to Andrew Whitty and that is a increased focus on investment in life science and areas of Jason C to " to GSK 's business and also a focus on maximizing the value of may be technologies and platforms that we have discovered internally in both our pharmaceutical business or vaccine business and our consumer healthcare business and seeing if there are innovative ways of maximizing the value of that. So that's -- that responsibility, with that what my time at SR One [PharmaDeals ID = 25425] taught me was the focus the venture capitalist have on how they develop the relationships with the company and the idea that you are in it from the first series all the way through when the new series comes up you got a place at the table and you're gonna be investing, that's something I think the pharma -- that we've learnt from is particularly in this economic climate you've got to be there with your partner all the way through it's not do the deal then walk away, just do the deal and then work with your partner to bridge the hurdles that we all know will come.
Fintan Walton:
But presumably you are co-investing with other venture capitalists?
Adrian Rawcliffe:
We are, yes certainly.
Fintan Walton:
And you would always do that in every case?
Adrian Rawcliffe:
No not in every case, there are circumstances where we'll consider our own investment but also we do think of this is a sort of symbiotic ecosystem with us and the biotech companies and the investors and so if you look at our investment in Anacor for example we put in certain amount of money, other pharmaceutical partner put in money and also the existing investors did to.
Fintan Walton:
And there is no conflict of interest then between being an equity player in the biotech company working alongside other venture capitalists who are looking for a different out come to the one that GSK wants, I mean GSK in the end wants to have the product go through successfully into clinic on the way out into the market obviously but the venture capitalist are looking for an exit?
Adrian Rawcliffe:
Venture capitalists are looking for an exit but venture capitalists looking to create value and the surest way to create value is to develop and deliver products there nobody's has ever found a different way of creating long-term value and so I think our interest are completely allowed.
Constant evolution of biotech model.
Fintan Walton:
Right, 30-years ago biotech come on to the landscape and changed the way in which research and development was done with the -- within the pharmaceutical industry, as we progress into 2009 and seeing a changing landscape in your from your perspective has the biotech or is the biotech model about to change or has it changed ?
Adrian Rawcliffe:
I think the biotech model constantly evolving so it's not like it was created 30 years ago and it's been completely static since then. It's evolved over as the public and the private markets have waxed and waned I do think that there is a great deal more by build for acquisition as opposed to building for IPO and that I think has a -- brings a perspective which is more asset, more product based, less organization, less infrastructure based to the biotech industry which I think is a good idea. And I think yeah we can learn I think the venture capital industry can learn from it's private equity brothers in terms of bringing that focus to bare and how do I really sweat the assets. And from a pharma perspective that -- that's in our interest to. I think the -- we are interested in spending as much money as we can from our limited R&D part on things that progress the products towards patients and as little as possible on infrastructure.
Seed capital issues in the pharmaceutical industry.
Fintan Walton:
But one of the issues I suppose facing biotech is at seed capital level in a very early stage, so one of the big fears that people have is that we are going to run out of biotech companies, we just talked about a great number of biotech companies possibly going bust in the next year or so. We know that seed capital is drying up and if they do get seed capital there is a usually a funding gap that follows it. So where does that leave the pharmaceutical industry, does that mean that pharma will probably run out of biotech after a while or will have to just go straight to the universities?
Adrian Rawcliffe:
I'm not convinced.
Fintan Walton:
Or may be it needs to create this entrepreneurial in a sort of (indiscernable) biotech environment?
Adrian Rawcliffe:
I'm not convinced that a short-term change in the fund particular funding parameter is implies a long-term shift and I think we are in a very long-term business. So yeah people talked about how the IPO market has disappeared, the IPO market will come back, people talk about how acquisitions have fallen off, acquisition activity will, will return and I think they driven off the fundamental principles which is for also long as there are transformative medicines that really change patient experience of disease society will be prepared to pay for those a reasonable price for those and that creates the incentive for innovation. So in very long-term whatever short-term problems we are having and I'm not minimizing those because they are profound for individual companies but long term I believe that the economics still hold the tree.
An optimistic future for biotech.
Fintan Walton:
Right. So then looking into the future taking from a perspective of your own experience and that of your colleagues at GSK, what do you hold out for biotech then in the future? are you optimistic or you pessimistic or cautious?
Adrian Rawcliffe:
I'm very optimistic, I think the worst there are clearly difficulties. The biotech community the level of innovations that we see when they are out there is still huge from early stage companies like yeah our deal with Mpex [PharmaDeals ID = 30505] or EffluxPumpInhibitors is just a great example of -- of potential transforming what is a you know a therapeutic area anti bacterial drugs where we put a lot of investment in it over the last few decade but this could be transformative here. All three of the RNAi, micro RNA and then even in their late stage you know our partnership with Actelion's [PharmaDeals ID = 30762] on Almorexant to potential transformative medicine for sleep all of these give me a lot of confidence that the innovation is out there. I also look internally within GSK and I see great innovation too. So and I think the dynamic relationship between the external biotech community and GSK is strong at the moment and I don't see any reason why it shouldn't continue to grow.
Fintan Walton:
But shouldn't, you know, one of the issues often is talked about is the externalization of your own research and development and putting it back out into biotech companies that can be independently funded, can big pharma companies do more there, or should they do more of it?
Adrian Rawcliffe:
I think our view is we want to maintain a strong drug discovery organization that means working out what we can genuinely be the best at and doing it really well and then working out where other people are just as good if not better and going and sourcing that and breaking down our organization into small units has really helped us to do that because it has brought focus to particular areas of science and left the power and the decision making in the hands of the people who really understand bone metabolismor muscle metabolism or HCV as oppose to of a top of an organization where people have responsibility for across a wider range.
Fintan Walton:
Right. Ad Rawcliffe thank you very much indeed for coming on the show. Thank you.
Adrian Rawcliffe:
Thank you, my pleasure.
Adrian Rawcliffe
Senior Vice President, Worldwide Business Development
Adrian Rawcliffe, is Senior Vice President, Worldwide Business Development for GlaxoSmithKline. In this role he has global responsibility for all business-development activities. Within Worldwide Business Development, Adrian Rawcliffe leads a global team of scientific and transaction experts building diverse collaborations relating to compounds (early stage discovery programs through to marketed products) and technologies including co-development, in-licensing, product acquisition, and / or co-promotion / co-marketing arrangements, R&D based mergers & acquisitions, technology licensing, research collaborations, academic relationships, post-agreement alliance management. Adrian Rawcliffe had most recently served as Managing Partner and President, SR One Ltd, GSK's venture-capital business. Previously, he served as Vice President, Genetics and Discovery Deal Structuring, concentrating on collaborations in early-stage drug development, and Vice President, Transactions and Ventures, leading a US-based transactions team whose activities encompassed both in-licensing and out-licensing. Adrian Rawcliffe holds a BSc degree in Natural Sciences from the University of Durham, UK. He joined in 1997 from Coopers and Lybrand, where he was a Chartered Accountant involved in a range of business-advisory activities.
GlaxoSmithKline Plc
GlaxoSmithKline, is a United Kingdom -based pharmaceutical, biological, and healthcare company. It is the world's second largest pharmaceutical company and a research-based company with a wide portfolio of pharmaceutical products covering anti- infectives, central nervous system, respiratory, gastro-intestinal, metabolic, oncology , and vaccines products. It also has a Consumer Healthcare operation comprising leading oral healthcare products, nutritional drinks, and over the counter medicines. GSK was formed in 2001 by the merger of GlaxoWellcome (formed from the mergers of Burroughs Wellcome & Company and Glaxo Laboratories), and SmithKline Beecham from Beecham, and SmithKline Beckman.