Thursday, April 23, 2009

GSK Slides Away From Innovation

Two news items this week reminded us of GSK's flight from innovation. First, its re-entry into dermatology, via the $3.6 billion acquisition of privately-held Stiefel Labs (see our Pink Sheet DAILY coverage here)--the largest buy on CEO Andrew Witty's watch so far. The second news item that heralds the demise of the R&D-based pharmaceutical company? GSK this week got the green light to launch Alli, an OTC version of Roche's Xenical in the EU.

Okay, so we recognize that these moves amount to GSK (among others) taking a stab at general "healthcare" or "wellness". It is an "R&D based pharmaceutical and healthcare company" after all.

It's also an attempt by GSK to get closer to customers. GSK's take-out of Stiefel proves that derm--a low-margin zone with, until now, little sex appeal (GSK sold out in 2005) is attractive again, as is any other reliable revenue source in this R&D productivity drought.

Now sure, there's innovation in derm. Most of Stiefel's business is in prescription drugs (though that doesn't necessarily equate to innovation). But a good chunk of it--about a third--is OTC and a growing aesthetic business. Think dermal fillers and anti-wrinkle creams. In fact, only about 5% of dermatologists are purely focused on medically necessary products; most deal with the cosmetic side as well.

Indeed, "dermatology is more of an art than a science," Stiefel's President Bill Humphries told The In Vivo Blog the day after the deal was announced. "There aren't many blockbusters nor many cures," he elaborated. But GSK's diving in nevertheless.

Plenty of analysts and press--including ourselves--duly report the Stiefel acquisition as an example of Witty's very sensible diversification and de-risking approach. Reducing cyclicality 'n all that. But what about innovation? Is GSK now to be all about Sensodyne toothpaste and diet pills?

Speaking of diet pills....Alli sold £29 million (about $42 million) in the US this last quarter, a tidy sum for an OTC product. This week's EU approval means Alli should be a nice little earner in (increasingly fat) Europe--especially given the medicine's cost of £50 per month in the UK.

Why would an overweight European punter pay for the drug instead of getting double the dosage on prescription, for free? Because, says a GSK spokesperson, "if someone wants to shed a few stone, the vast majority would want to manage that themselves, seek solutions on the high street, in slimming clubs for instance." (Will GSK invest in slimming clubs next? Talk about diversification. We can't wait to see that press release.)

"We've trained 7000 pharmacists" in the UK on how to dispense Alli appropriately, says the GSK spokesperson. Alli-shoppers will have to prove their BMI is 28 or more, and be over 18 to purchase the medicine.

The idea of being weighed or having your waist measured in your local pharmacy may provide enough incentive to diet. If it doesn't, Alli will. The drug's by-now renowned side-effect is oily stool. The way to avoid that, the GSK spokesperson continues, "is to follow the recommended low-fat diet."

It makes sense, economically and socially, to help prevent patients getting heart disease and diabetes in the first place, rather than only providing snazzy, often expensive, treatments. And yes, we acknowledge that GSK's doing a bunch of interesting things to get its R&D going, to be fair. But too many more diet pills and anti-wrinkle creams, GSK, and you'll have to drop the "research-based pharmaceutical company" bit.

(Photo courtesy of flickr user Scott Abelman, used with permission through a creative commons license.)

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