GSK plans dramatic extension of drugs research outsourcing

Glaxosmithkline, the UK's biggest drug maker, has signalled a massive extension of its partnership deals with smaller pharmaceuticals companies as it struggles to improve the number of new drugs coming through its pipeline.

The company is pioneering ways of outsourcing drug development work and says that the number of products discovered by external partners could eventually outnumber those produced in-house.

Tachi Yamada, GSK's head of research and development, said there were encouraging signs from a first wave of partnership deals, where an outside company combines the fruits of GSK's early-stage drug research labs with its own expertise to develop new products. Six such deals have been signed so far. "It is a business model that is appealing from our point of view, and it is also appealing to our partners. We are starting to see signs that it is going to pay dividends," Mr Yamada said. "I think that eventually the output from them could be as wide as the output from our internal operations."

The outsourcing of drug development work on this scale would be a dramatic extension of the principles of competition that Mr Yamada introduced to GSK at the time of the founding merger of Glaxo Wellcome and SmithKline Beecham in 2000.

Then, GSK reorganised its operations into "centres of excellence in drug development" (Cedds) focusing on work in specific disease areas and competing for central funds. The aim was to recreate the entrepreneurial spirit of smaller biotech companies, which were at that time attracting some of the brightest scientific talent.

Mr Yamada said the companies with which it was working most closely were operating as "virtual Cedds" and had introduced "competition between the internal and external". For example, Theravance, a mid-sized biotech company, is competing with GSK's in-house scientists to develop asthma drugs which will eventually replace GSK's best-selling medicine, Advair.

Jean-Pierre Garnier, GSK's chief executive, credits the creation of the Cedds with transforming the pace of drug development and a big increase in the number of drugs moving into the final stage of human trials which, by the end of the decade, could lead to a large jump in new product launches. The company is expecting only flat earnings this year because of a drought of product launches to replace lost earnings from blockbuster antidepressants and antibiotics, which have lost patent protection within the past 18 months.

GSK is experimenting with virtual drug development at a time when investors are questioning the value of the Big Pharma business model, which requires dramatic scientific breakthroughs to propel earnings growth. Mr Yamada said there were benefits of scale in early-stage research which requires the screening of thousands of chemical compounds, and in the late stages of development, when large and expensive human trials must be carried out.