GSK's Witty Pumps Up the Pharma's Drug Pipeline Prospects

GlaxoSmithKline (NYS: GSK) CEO Andrew Witty has been trying to plant seeds of optimism in an investor community that sees little reason for optimism in the global financial markets.

The Independent, a London newspaper, reports that Witty told investors at a recent dinner that drug pipeline of the Britain-based pharma giant "will transform the company." At the dinner with fund managers, Witty discussed the potential of the company's R&D.

"He said in a little over a year we would see just what is in their R&D," one unnamed attendee told The Independent. "He was quite vocal that GSK would be protecting margins."

Although Witty has expressed optimism in his public comments about GSK's drug pipeline, those comments have been tempered with a little more reserve. In a conference call after the release of the company's third-quarter financial results, Witty said that 2012 should see results from more than 30 phase 3 clinical trials.

"We have the potential depending on the data flow to be able to file for 10 new products during 2012," he said.

Witty has made clear his intentions to change GSK since he took over as CEO in 2008. The company, which has its U.S. headquarters in Research Triangle Park, North Carolina, has refocused its R&D efforts, a move that included scaling back some neurosciences R&D. While the move was not a retreat from neurosciences, it was part of a company effort to review where its R&D was or was not likely to be productive.

Under Witty's watch, the company has also revamped its sales and marketing strategy by removing the financial incentive for pharmaceutical sales representatives in favor of a model that compensates sales reps on criteria such as customer feedback and the ability to communicate scientific and medical information about a drug. And GSK recently settled with the federal government for $3 billion to resolve civil and criminal inquiries into whether it inappropriately marketed several drugs. That settlement included an inquiry into former diabetes blockbuster drug Avandia, which fell under a cloud of scrutiny in recent years amid links of the drug to increased cardiovascular risks. Witty said that the settlement was in the best interest of the company and its shareholders. Settlement discussions for Avandia patient litigation is currently under way.

Despite these moves, the measure of Witty's work will probably fall most heavily on the success of GSK's drug pipeline. Signs of that drug pipeline potential have already emerged this quarter. In October, GSK released preliminary results of a phase 3 clinical trial studying what could become the first malaria vaccine. Studies show that the GSK vaccine cut vaccine risks by nearly half, and additional clinical trial results, including a study on infants, are expected by the end of next year. Earlier this year, GSK and drug partner Human Genome Sciences (NAS: HGSI) secured U.S. Food and Drug Administration approval for Benlysta, the first new lupus treatment in almost 50 years.

But there have been stumbles, too. Last week, GSK released results of the first of eight planned phase 3 clinical studies comparing its type 2 diabetes candidate to other diabetes drugs. In the first trial, GSK's albiglutide failed to demonstrate it was more effective than a currently available Novo Nordisk (NYS: NVO) injectable drug that is administered daily. Albiglutide is expected to offer a dosing advantage with patients needing only one shot per week. And in September, a GSK meningitis vaccine candidate failed again in its bid to secureFDA approval. It was the second complete response letter for the vaccine candidate, MenHibrix.

With several drugs teetering on the patent cliff, GSK needs new products to fill the void, and 2012 will be a key year for GSK to identify them. That is what GSK investors will be discussing in dinner conversations, whether Witty is dining with them or not.

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