To R&D or not to R&D?

Presented to GSK Business Projects Group

Tuesday, December 7, 2021

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 A 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

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Modify the model

PROS CONS

+ -
How would you analyze this proposal for GSK?

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Big Pharma
Global Pharmaceutical Leaders
Twelve Months Ended December 31, 2007
In $ Millions
(Source Company Annual Reports)
Company Revenue R&D
Pfizer 48,418 8,089
GlaxoSmithKline 38,466 6,645
Sanofi-Aventis 38,452 6,219
Roche 32,402 6,339
AstraZeneca 29,559 5,162
Novartis 25,477 6,430
Johnson & Johnson 24,866 7,680
Merck 24,197 4,883
Wyeth 22,400 3,257
Bristol-Myers Squibb 19,348 3,282
Eli Lily 18,634 3,487
TOTALS $ 322,219 $61,473

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Revenues
Revenues 2007 - In $ Millions

Rest of
the Big
Industry Pharma

$389,781 $322,219

55% 45%

$712 Billion in Global Revenues

2007 Revenues: $712 Billion

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Research and Development
R&D 2007 - In $ Millions

Rest of
Big
the
Pharma
Industry
$61,473
$33,580
65%
35%

$95 Billion in Global R&D Spend

2007 R&D Spend: $95 Billion

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 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?

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Big Pharma – 21st Century Dynamics
Drivers Resistors
Demographics Drug Discovery
Biotechnology Patent Expirations
Emerging Markets Generics
Innovation

Opportunities Concerns
Therapy Niches Drug Safety
Lifestyle Diseases Drug Prices
Unmet Needs Industry Credibility
Outsourcing

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Back 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

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Back to the Headlines
“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)
140,000

120,000 111,137 115,582

102,752 106,862
95,000 98,800 R&D
100,000 Outsourcing

80,000 R&D

60,000 48,273
41,976
31,740 36,501
40,000 27,600
24,000
20,000

-
2007 2008 2009 Year 2010 2011 2012

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Back to the Headlines
“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%

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Back to the Headlines
“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.

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Drug Development Process

SOURCE: PhRMA Industry Profile 2008

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 The Cost of a Blockbuster

Source: Bain Drug Economics Model 2003

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 R&D Productivity Decreasing
NDAs Approved
New Drug Applications (FDA) New Molecular Entities
NDAs Rec'd
160
140
120
100
80
60
40
20
0
0

1
2
3
95
96
97

01

03
04
05

06
98
99

00

02
9

9
9
9
19

19
19

19

19
19
19

19
19

20
20

20

20
20
20

20
Year

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Does GSK need to worry?

• Advair Patent Expiry 2010

GlaxoSmithKline
2007 Sales by Therapeutic Category
Respiratory
Central Nervous System
26%
18%
• 34 product opportunities in
Anivirals 16% Phase III or registration
Metabolic 8%
Vaccines 10%
Cardiovascular & Urogenital 8%
Antibacterials 7% • 157 projects in clinical
Oncology & Emesis 2%
Other 5% development
Total 100%

• Avandia sales decline

Yes!
Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021
 Forcing 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

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

Five Forces Analysis – Big Pharma
Power of Buyers

• High switching costs

• Substitutes increasing
• Price sensitive

MEDIUM

Power of Suppliers Competitive Rivalry Threat of Substitutes

• Low costs of inputs • First mover advantage with • Generics

• Presence of many patented drugs • Biotechnology
substitute inputs • Economies of Scale • Focus on Prevention
• Low switching costs
LOW HIGH MEDIUM

Barriers to Entry

• High R&D, Manufacturing

& Marketing Costs
• Patent protection

HIGH

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 SWOT - GSK
Strengths Weaknesses
 Marketing strength in major geographical and  Large size
therapeutic areas  Discontinuation of products in later stages of
 Financial Strength – Strong Cash and Asset Position, development
and Access to Debt/Equity Instruments  Patent Expirations
 R&D expertise with broad therapeutic coverage  Decline in revenues
 New management  Geographic focus
 Growing consumer products business

Opportunities Threats
 Decreasing development time through favorable R&D  Regulation
collaborations and internal efforts  Litigation
 Co-marketing and partnership agreements  Rising R&D costs
 Outsourcing of R&D and manufacturing  Generics
 Eliminating redundancies  Competition from Chinese and Indian companies
 Demographics

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 If the change is made?

PROS CONS

• 100% focus on profit generation • Increased reliance on others

• Significant cost reductions • Reduction of potential future
• Quickly change strategies revenue streams
• Increased transparency • More cyclicality
• Reduced regulatory burdens • Innovation removed
• Higher returns to the shareholder • Socio-Political backlash
• Expansion of partnerships • Sense of failure

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 A 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

Sachin Patel – GSK Business Projects Presentation Tuesday, December 7, 2021

 Questions

Sachin Patel – GSK Business Projects Presentation

? Tuesday, December 7, 2021