GSK challenge: to deliver on Yamada pipeline legacy

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The departure of GlaxoSmithKline's head of research and development, Tachi Yamada, draws a line under the impressive turnaround he masterminded over the past five years that saw the group's threadbare pipeline of new drugs turned into one of the industry's best.

When GSK's charismatic chief executive, Jean-Pierre Garnier unveils the group's annual results at London's Savoy hotel today, he is expected to give some eagerly awaited news on the progress made on new drugs such as the potential blockbuster cervical cancer vaccine, Cervarix.

A broad range of new drugs is approaching the end of phase II trials, a bulging portfolio the UK rival AstraZeneca can only dream of, but most remain some way from the market. A GSK spokesman admitted: "Pretty much everyone accepts it's a good pipeline, but the real challenge now is to deliver on the pipeline."

Mr Yamada, 60, the architect of that portfolio, is retiring from the pharmaceuticals giant in June, a year earlier than planned, to take on a bigger role at the Bill & Melinda Gates Foundation. The Japanese-born and US-educated former academic will run the global health programme of the charity which has $28bn (£16bn) of Microsoft money.

During Mr Yamada's five-year tenure at GSK, formed in 2000 from the merger of SmithKline Beecham and Glaxo Wellcome, the number of new products in the pipeline has grown from 50 to 97. They include Entereg, a treatment for people who have had intestinal surgery, and Tykerb, an oral treatment for breast cancer. Mr Yamada pioneered a new business model by reorganising GSK's research operations into small, biotech-style units.

The research budget has grown to £2.8bn annually, amounting to 16 per cent of sales, a proportion M. Garnier wants to increase to up to 25 per cent over the next few years. One way of ramping up R&D further would be to acquire Serono, the Swiss biotech group GSK is eyeing.

M. Garnier said yesterday: "I would have liked to see Tachi stay a bit longer but the more important thing is to have a seamless transition."

GSK promoted a senior member of Mr Yamada's research team - Moncef Slaoui - to succeed him. He has established himself as an expert in the vaccines area. The challenge now faced by GSK's chairman, Sir Christopher Gent, is to find a successor for M. Garnier as he is coming up to retirement age at the end of next year. M. Garnier said: "I'm not going anywhere any time soon. The board is going through the usual process so we are ready at the time." He has made no secret of his preference for a company insider to succeed him. M. Garnier said: "I would favour an internal candidate. We will take a look outside but I sense that our people inside are better than what we would get outside."

The promotion of Mr Slaoui, a 46-year-old Moroccan, appeared to shift the dynamics of the CEO race. Analysts shortened the odds on Andrew Witty, the 41-year-old head of European operations, succeeding M. Garnier when he retires. Previously some believed Mr Witty's relative youth might count against him, but took heart from Mr Slaoui's appointment. The other front-runners are believed to be Chris Viehbacher, 45, head of GSK's US business, and David Stout, 51, chief operating officer.

The appointment of Mr Slaoui, who spearheaded GSK's work on Cervarix and the Rotarix diarrhoea vaccine, as the new head of R&D also underlines GSKs determination to become a world leader in vaccines, one of the company's best-performing divisions in the third quarter. GSK has followed the French rival Sanofi-Aventis by piloting a vaccine against bird flu, with clinical trials to start soon. If all goes well the treatment could be on the market by the end of the year, GSK says. Unlike approved drugs such as Roche's Tamiflu, which merely treat symptoms of bird flu, GSK's treatment "mocks up" what a pandemic flu strain might look like to provide immunity against an outbreak.

Many analysts are hopeful GSK can make further progress. Max Herrmann, at ING, said: "GSK is due to launch seven significant new drugs in the next two years. We forecast sales of these drugs to exceed £6bn by 2012, and should accelerate GSK's pedestrian sales growth rate."

GSK has performed better than many expected a year ago, and City analysts forecast a 19 per cent rise in 2005 earnings, driven by strong sales of the asthma drug Advair. They are looking for double-digit earnings growth this year.

M. Garnier described the two main challenges facing GSK as increasing R&D productivity and getting the sick to pay towards their treatment in countries with a "single payer system" such as the NHS, which puts pressure on drug companies to lower prices. Another issue is competition from copycat manufacturers when drug patents expire, which usually erodes sales by 90 per cent within months in the US.