R&D surge will make GSK the Microsoft of drug market - Garnier

Blockbuster drugs will fuel pipeline, chief executive of pharmaceutical giant tells Julia Kollewe

At the time of the £107bn merger of Glaxo Wellcome and SmithKline Beecham in 2000, the architect of the deal, Glaxo's chief executive Sir Richard Sykes, spoke of creating the "Microsoft of the pharmaceuticals industry". Now Mr Garnier, previously the head of SmithKline and the man who became the chief executive of the merged company, believes ramping up investment in the research and development of new drugs is crucial to making this vision come true.

Mr Garnier said: "In terms of creating the Microsoft, this is a vision of the most R&D intensive company which I completely agree with. We have a chance to step away from the rest of our competition if we execute our plan well and we're now in a position to do so."

GSK is the second-largest drug company in the world, with a 7 per cent market share behind America's Pfizer at 11 per cent. Last week Mr Garnier's contract was extended by seven months to May 2008 so he could steer the group through a crucial year that will see the launch of several key medicines. They include Cervarix, a vaccine for cervical cancer, Tykerb, an oral treatment for breast cancer, and Eltrombopag, a blood clotting agent in the treatment of breast cancer.

These blockbuster drugs are set to bring in billions of dollars of extra revenue, enabling the company to pour large chunks into drug discovery from 2008, Mr Garnier said. This year the group is spending $4.4bn on developing new medicines, around 16 per cent of overall revenues, but the goal is to get that figure to the 20-25 per cent range over the next 10 years.

GSK is in the enviable position of having a bulging pipeline of new drugs which it describes as the best in the industry. In a remarkable turnaround from the threadbare pipeline it had six years ago, the number of new products in development has doubled to 97.

That turnaround was masterminded by GSK's departing head of R&D, Tachi Yamada, who broke up the company's huge research organisation and reorganised it into small, nimble, biotech-style units. But the idea of these centres of excellence in clinical development (Cedd) originated long before Mr Yamada's tenure, and it took the merger of Glaxo and SmithKline to make it happen. "The concept of Cedds was something we thought about long and hard before the merger," Mr Garnier said. "I just couldn't do it at SmithKline because there was resistance from all the senior scientists because their own jobs would disappear. We don't have a head of worldwide pharmacology now but we used to. The merger provided the earthquake that was necessary."

However, two years ago Sir Richard cast doubts on the benefits of the merger, and Mr Garnier conceded that big mergers take time.He believes there is more industry consolidation to come. "Some companies are having great difficulties. They have shrunk, they don't have a very strong pipeline and therefore some will need to be rescued, so there will be defensive mergers in the future." Recent speculation has centred on GSK's British rival AstraZeneca, which is struggling to rebuild its minimal pipeline, as a takeover target.

Mr Garnier, who is known as JP, has frequently courted controversy during his time at GSK. A memorable moment was the "fat-cat" pay dispute in 2003 when he refused to climb down over his huge pay package and became the first FTSE 100 chief executive to have his pay agreement thrown out by investors.

Early in his tenure he was faced with a public outcry over the pricing of HIV/Aids drugs but defused the row by agreeing to sell cut-price pills to Africa. The company is now the leading supplier of Aids drugs to 60 of the world's poorest countries at not-for-profit prices, and today will announce two new medicines as well as a 30 per cent price cut on the drugs.

GSK, which uses the controversial animal testing firm Huntingdon Life Sciences, was recently targeted by animal rights extremists who sent threatening letters to private shareholders. But Mr Garnier said he was encouraged by the reaction of his investors. While some elderly people were clearly frightened, others vowed to double their stakes in GSK in defiance. "Mostly the answer was resilience and a kind of anger. This is Great Britain - this is a country of resistance and resilience," Mr Garnier said. Asked whether he would consider relocating the business to the US, where he lives just outside Philadelphia, he said the group would not "flee the country" and would stay as long as the UK government supports science and innovation. More than half of GSK's research is carried out in the UK and only 30 per cent in the US.

In the public eye, the pharmaceutical industry stands accused of making excessive profits through inflated drug prices. But Mr Garnier vehemently defends the industry. "If we don't make significant profits, the money is not going to be there to discover the next Alzheimer miracle or the next vaccine against cancer. We're a high-risk, high return kind of company."

Developing drugs is a tricky business, he contends. "It's more difficult to discover and develop a new drug than to put a rocket on the moon and it also costs more money." Moreover, drugs continually come off patent and need to be replaced by new ones.

Mr Garnier, born in Normandy, often returns to France to visit his mother in Strasbourg or to go hiking in the mountains. He does not know what he will do when he retires. For now, he is focused on "finishing the game plan that was put in place at the time of the merger" and guiding the board to pick a successor, likely to come from within the company.