That was a very interesting post and I would agree with your analysis entirely. However, I'm less pessimistic about the future. I don't know how familiar you are with systems biology as a discipline, but I think it's an interesting, rapidly developing field that has great (and to a limited extent, proven) application in predicting the effects of drugs at a systems level, i.e. on the cellular 'black box'.
I do think that, eventually, we'll move away from the model of throwing small molecule spanners into membrane receptor machinery and then hoping for the best. I think that'll even filter up to GSK eventually.
"Chickenguy were/are you employed in R&D??"
Yes, I retired about 2 years ago after 15 years in pre-clinical pharmacology, testing drug candidates in animal and cell models. The last step before toxicology takes over. No regrets, was treated well and fairly, had a lot of interesting challenges.
I remember when scientists would traipse through South American jungles accumulating tree moss and exotic flowers looking for the new penicillin. Since I follow obesity on a regular basis I was interested to see PFE ( I think ) was trying to use gila monster saliva as a cure for obesity as they were trying to figure how the dessert creature could go for so long without food.
The new science such as RNAi is years away and I find the small drug discovery guys doing a much better job. Side effect profiles are going to be the mountain they have to climb when delving into the cell. The folks engaged in cancer drug discovery have been frustrated for years with side effects, and even now I am amazed Erbitux and Iressa get approved. But look at Viagra. It has killed about 300 people according to some but millions take it so it is a reasonable risk.
And look what chemo and radiation do!
But we both have to admit that in the last 50 years or so our life spans have increased, even with all The Big Macs we have consumed.
Drug companies have made a lot of that possible. But I agree with you that they have hit a wall and the smart ones will find and buy assets that increase the stuff the put into packages and deliver to CVS.
What was spent on R&D last year and most of what we have to show are " me too " drugs.
Occassionally someone actually posts something really ... I mean "really good" ... and I think you just did.
Your post sums up the major problem facing the RX industry for many, many years ... possibly forever. Explains the odd behavior of RX companies such as merger mania, big RX contributions to Republicans, support for caps on lawsuits, fight against price controls etc. as they are "buying time".
Also, the morale for this story is "don't be the first on your block to try new designer drugs".... let someone else be the lab monkey for a few years to see all side efects.
Chickenguy were/are you employed in R&D??
You're welcome, and thank you for your kind words.
Regarding pipelines and the difficulty pharmas are having finding new drugs, I think that the problem is in the science. For the past 30-40 years, pharma mined receptors on cell surfaces. Hormone receptors, neuro-endocrine receptors, things that were relatively easy to understand and modulate. The effects of drugs acting on these receptors caused system activity to increase or decrease, but did not generally affect fundamental system function broadly. Now, pharma is trying to work at the level where genes work - inside the cell, and affecting multiple systems broadly, because the drugs act very far upstream, so that many systems are affected downstream. This means that side effects are multiple, varied, and serious. To say it simply, I think that the easy targets have been exhausted, and that what pharma is now trying to do is much more difficult, maybe impossible. The scientists are still dedicated and very good. But genetics and molecular biology have run so far ahead of physiology and pharmacology that it just isn't possible to create cell or animal assays that predict what a drug will do, at least not early enough in the discovery process to support good decisions.
I think that large pharma is the dinosaur of our age. The climate is changing, there isn't enough food to support the population, and they have grown too big to adapt. I would not be surprised if, 20 years from now, there were only about 6 major pharmas left, one per major geographical area, and if they were mainly marketing entities, with small companies doing all the discovery, and with contract houses doing development. The present model just doesn't make sense to me in today's world.
Thank you for a very cogent reply. I am not as worried about the political aspect as I am about every drug company's derelict pipelines.
They have these feifdoms in the research labs where it seems the heads of the areas do nothing but protect inept management and are loathe to see if there is anything outside the company that may make sense. The mergers like WLA/PFE/PHA will only work so long.
My reading of the FDA is that they are trying to be a lot more flexible when it comes to drug approval, but it seems the drug companies are having a tough time finding new compounds.
You are a very able fellow I and I enjoyed your analysis. Thank you.
I'm not surprized that you are having trouble seeing the future for GSK, because I think that the entire sector is facing major changes and that GSK in particular will encounter problems. But it is a really hard analysis, in my opinion.
Regarding the sector, I see both short and longterm challenges from the political side. There is intense pressure to lower drug prices in the US (where GSK and most major pharma make 50% or more of their profits), either through controls or through allowing imports from countries with controls, like Canada. If this comes about, I just don't see how companies will offset the reduction in US sales. And given that we are in an election year, I would expect that both parties will put forward some sort of draconian proposals for how they will reduce drug costs. Whether these are ever enacted or not, I would expect drug stock prices to fall in response to the possibility.
Regarding GSK, I think that they have put in place a Research and Development structure and strategy that can not succeed. My perception is that rigorous, critical evaluation of the science underlying drug targets and drug candidates is not being performed, because the system rewards meeting numerical quotas for candidate compounds progressed to the next level, regardless of whether they succeed or fail at that level. And, there is no reward or recognition for demonstrating that a drug candidate will fail and should not be progressed. That is not seen as success at any level. Thus, within the Centers of Excellence where Research and Early Development are conducted, the mindset is to move candidate compounds up and out to Full Development, because that is how success is measured. Long-term, I see this as a disasterous strategy, because it means that the failures will be late and costly, both in terms of dollars and disappointment to investors. And it makes me pessimistic about the pipeline.
There is a lot more to think about, but these are the two aspects for the sector and for GSK that cause me the most concern. I would not be a buyer of drug stocks until the sector concern is clarified. And I don't see any compelling reason to buy GSK, either from the point of view of income (many higher yielding options) or value or growth.
All the above is entirely my opinion, and while I make decisions based on it, I would recommend that others view it with great scepticism. Good luck.
An good friend of mine used to be SK guy in HR responsible for recruiting.He still loves the company and thinks it is a great buy here.
Do you have an opinion and a good feel for management ( over and above my complaints ) and what their pipeline has to offer.
I used to follow a fellow named Jonathan Gelles who loved Glaxo in the early 1980s. I am thinking that the major drug companies are beginning to look cheap, but I am having a hard time looking out.