Whenever a prominent analyst like Tim Anderson at Bernstein pens a review of a struggling Big Pharma company that asks the question if all hope is lost, you know it will be a painful read for any remaining true believers. GlaxoSmithKline ($GSK) and its embattled CEO Andrew Witty came in for that treatment a few days ago. And even if Anderson's answer was a qualified no, you can hear the clock ticking as the market waits for some kind of sign that there's a coherent plan taking shape to move forward decisively.
Ever since GSK started to rip into its expensive U.S. R&D operations late last year, the focus at the company has been on executing its big flip with Novartis ($NVS) as it retrenches. As Anderson explains in his review, trading a cancer portfolio in favor of a vaccines group is supposed to help steady the company with a reliable if unexciting stream of revenue. Pairing its vaccines division--which is now uprooting and downsizing its U.S. research group--with its consumer business doubles down on the steady-as-you-go approach.
But the exchange of portfolios, Anderson also notes, came after GlaxoSmithKline had started to build some excitement for its cancer drugs, an essential ingredient for any Big Pharma that hopes to whip up some market enthusiasm for a potential breakout on the revenue side. And with cancer largely out of the picture, the drug side at GSK tends to center on respiratory drugs, a crowded me-too field where GlaxoSmithKline has already failed to perform as promised. With the Advair franchise fading fast, Witty and the company are in a critical survival mode. And there are plenty of analysts who doubt that the CEO can survive much longer.
In most cases, a situation like this would trigger a frenzy of new biotech deals tied to bold pronouncements about future potential. With its marriage proposal to AstraZeneca ($AZN) publicly burned and stamped on, Pfizer ($PFE) went on a deal spree, and continues to ink new pacts and buyouts. AstraZeneca has been buying up a slew of assets that fit into its new core disease focus for years now. Even Roche's ($RHHBY) Genentech is a more avid acquirer. And all of this is happening at a time biotech assets have reached an unprecedented high, as Alexion's ($ALXN) $8.4 billion deal for Synageva ($GEVA) or AbbVie's ($ABBV) $21 billion Pharmacyclics ($PCYC) buyout illustrate.
But not GlaxoSmithKline. Its announcement yesterday that the company is spinning out early-stage HIV research into a separate company that will get an extra $4 million a year in economy-sized financial support only highlights the absence of significant dealmaking. Talking to the Financial Times, Witty defended his strategy, which he believes leaves GlaxoSmithKline better positioned to weather the storm of a growing payer backlash directed against high drug prices for newly approved therapeutics.
That logic tends to fail with Anderson--who's also not the least bit happy that GSK has suddenly reversed itself on a Viiv IPO--and a lot of other analysts as well.
"It's as if GSK is playing string music just as the market is getting into drum and bass," one unnamed analyst tells the Financial Times.
If Witty isn't careful, and GlaxoSmithKline can't ignite more enthusiasm, the market will soon call for a funeral march. -- John Carroll, editor-in-chief (email | Twitter)