Laurent Tigrani blog

BOSTON (Reuters) – GlaxoSmithKline Plc says it is not interested in making a counterbid for U.S. biotech company Genzyme Corp and that an acquisition of such size would be disruptive to its own research and development.

Glaxo has been cited as one of a number of parties contacted by Genzyme to determine its value as it fends off an $18.5 billion hostile takeover bid from France's Sanofi-AventisSA.

"Those kind of big deals are incredibly destructive to research and development," said Patrick Vallance, senior vice president of medicines discovery and development, who argued that the process can lead to chaos. "There is an argument for maintaining a stable R&D organization."

Speaking on Thursday to reporters in Cambridge, Massachusetts, not far from Genzyme's headquarters, Vallance and other Glaxo executives outlined their own strategy for drug discovery, and said big acquisitions are not part of the plan.

At a time when many large pharmaceuticals companies are struggling to develop new drugs from their internal research operations, Glaxo is experimenting with business models that could hedge its risk of failure.

One is option-based financing, where, instead of buying a company or an asset outright, it gets an option to buy the asset based on its progress in clinical trials. It is a model that is increasingly being adopted by other pharmaceuticals companies and mid-sized specialty drug companies such as Cephalon Inc.

"It allows GSK to 'test drive' the technology," said Rob Aboud, vice president, global operations and strategy development. "If GSK doesn't exercise the option, the biotech company keeps the programs."

The company is also moving away from developing drugs to treat diseases such as depression and schizophrenia where results are hard to predict and most drugs fail. The risk does not diminish even as the products move through late-stage clinical trials, Vallance said.

Instead, the company is focusing more on drugs for rare diseases, where patient populations are well defined, the disease can be accurately diagnosed and regulators are a little more lenient given the lack of treatments on the market.

Benlysta, the lupus drug Glaxo is developing with Human Genome Sciences meets that profile, Vallance said.

"It's exactly the sort of thing we want to be doing."

On Tuesday, an advisory panel to the U.S. Food and Drug Administration recommended that the agency approve Benlysta, which analysts estimate could generate annual sales of up to $5 billion.

MORE LATE-STAGE TRIALS, FEWER FAILURES

Whether the company's strategy is successful in bringing new products to the market remains to be seen, but Vallance said Glaxo is moving more drugs into late-stage clinical trials and is experiencing fewer failures along the way.

"It's early days," he said, "but our late-stage pipeline is very different from four years ago."

Glaxo held its day-long meeting at the headquarters of Sirtris, a company Glaxo bought in 2008 for $720 million. Sirtris achieved renown for its development of resveratrol, a natural enzyme found in red wine that received much publicity for its potential to lengthen life.

That hype moderated and Sirtris's chief executive, George Vlasuk, who joined the company in 2009, said since then the company, which vigorously fights to maintain its independence within Glaxo, has returned to a focus on science.

"We're not interested in longevity, we're interested in making aging a bit more tolerable," he said.

The first indications of whether the company's lead product, SRT2104, has promise, will emerge next year, with the unveiling of results from the first set of clinical trials. But it may be years before a product reaches the market, and there is skepticism among scientists that the drug can work.

Still, Glaxo has bet big on Sirtris and is willing to invest in other partnerships or companies that it believes can produce innovative medicines.

SELF-REPLICATING DISCOVERY

According to Vallance, one of the reasons drugmakers have failed to produce many new drugs, despite the money poured into research and development, is that they have invested in areas that have proven successful historically.

That has lead the discovery process to be "self-replicating," he said.

Glaxo wants to move away from the "industrialized" process of drug development to one in which individual scientific judgment is brought back into a process that has, he said, become increasingly automated.

As a result, the company created 40 Discovery Performance Units focused around specific technology platforms or therapeutic areas - with a staff of eight to 70 people who compete for funding from GlaxoSmithKline.

The idea is for the units to operate with entrepreneurial flair while having access to Glaxo's vast resources that a typical biotech would not have.

"We have a smaller overall pipeline with a higher portion in late-stage development," Vallance said.

(Reporting by Toni Clarke. Editing by Robert MacMillan)