What Are Glaxo Scientists Doing Right?

LONDON—Unless you’ve got a mean case of ulcers, you may barely have heard of Glaxo, maker of the top-selling digestive aid Zantac. But recent COUPS by the British pharmaceutical giant’s staff scientists have catapulted the firm to the forefront of the drug industry, giving its United States rivals a case of corporate ulcers. In the 1970s, Glaxo was consid ered an industrial laggard. But in the past eight years, the pharmaceutical company has pulled a stunning about-face. Besides producing Zantac, which has become a billion-dollar-a-year best-seller, the firm has more than tripled overall sales and quintupled the amount of money it pours into R&D each year (see chart). Amazingly, Glaxo has propelled itself from 25th place in 1980 to second place in the current international ranking (by sales) of drug firms— and there can be no doubt that it has its sights set on first. To get there, the company has announced an ambitious—and some say highly risky—program to expand its research staff, upgrade its laboratory facilities, and to double its R&D expenditures. Over the next five years Glaxo plans to hire 1,500 pharmaceutical researchers, large numbers of these in the U.S. And it is determined to dive into cancer, AIDS, and nervous system research in an all-out search for hot new products. Says Glaxo chair- man Sir Paul Girolami: “We’re aiming at Merck. We are number two to them in quality.” Can Glaxo challenge front-runner Merck and emerge number one? Indeed, the plan has been met with some skepticism, as industry analysts point out that Glaxo is unlikely to grow as rapidly in the 1990s as it has done in the past decade—and that the amount of money spent in the laboratory isn’t the only factor in the equation for success. “The company is going to find the next 10 years considerably more difficult than the last 10,” predicts Stephen Buermann, a drug industry analyst at the New York office of Merrill Lynch. “You don’t come up with another billion-dollar product that easily.” But the critics don’t sway the determination of Girolami, chairman of Glaxo since 1985 and before that the company’s finance director. Girolami is widely credited with supplying the necessary vision and imagination to drive the company into its upswing of the 1970s. Today, he acknowledges that Glaxo’s turnaround is due largely to Zantac’s meteoric rise in sales— and its ability to steal a majority of the anti-ulcer market from SmithKline Beckman’s Tagamet (due primarily, some analysts feel, to aggressive marketing tactics capitalizing on reported Tagamet side effects). But the fact remains that while Zantac profits may dwarf those of other Glaxo drugs, the company has run off a string of smaller successes in recent years— take the asthma medication Ventolin and antibiotics Fortum and Zinnatt, for example. This simply hasn’t been true of many other pharmaceutical behemoths. So what’s been happening at Glaxo? Girolami attributes this success to good planning, hard work, and some philosophical changes instituted at the firm—all factors that still exist to help Glaxo meet the challenges of a new decade. Foremost in the Zantac equation was shrewd business planning. SmithKline Beckman released Tagamet, the first anti-ulcer medication of its kind, in 1977 and met with tremendous success. In its first full year on the market, Tagamet sales topped $300 million. Market research conducted by Glaxo identified the demand for Tagamet as one that would rocket even higher in coming years. So Girolami put the heat on his scientists to speed up development of Glaxo’s own anti-ulcer medication. And he gave them the necessary financial and scientific resources to make Zantac a success. But Girolami also realized that the best “hurry-up offense” in the world can be vitiated while a product goes through the necessary testing process—typically requiring 10 years. So he and his fellow Glaxo executives decided to play high rollers, pioneering a technique known as parallel testing. By runnmg several of the necessary tests on the drug at one time—in parallel, rather than in sequence—the R&D division set Zantac on the fast-track to market, getting the drug from the lab bench to store shelves in just five years. Glaxo plans to continue testing its most promising drugs in parallel. If this practice works, as it did with Zantac, Glaxo hopes that it will provide the company with a major competitive edge—though many of the other major pharmaceuticals are now conducting parallel testing, as well. And Bernard Taylor, Glaxo’s chief executive, does concede that there are some potential pitfalls in parallelism. When tests are conducted simultaneously, there is a much greater risk of throwing vast amounts of money into a drug that will never reach market—because it fails a toxicity test, or causes inordinate side effects, for instance. “A few years ago, we had a product that looked as if it could be as big as Zantac,” says Taylor. “We had to pull out of the market launch because of fears about toxicity. We were going like a steam train at the time. I wouldn’t like to tell you how much money we wasted.” Still, the CEO insists that Glaxo is dedicated to the fast track—and willing and able to face up to the risks that come with it. The third key ingredient for Glaxo’s recent success, according to company insiders, is a revitalized approach to research that helped boost the attitude of the scientists. Gordon Gregory, head of Glaxo’s chemical analysis division, says that Glaxo researchers “now have a much more exciting environment in which to work.” This point is supported by Mike Harvey, who worked as a production manager at Glaxo and is now manufacturing director at Celltech, a U.K. biotechnology firm. Harvey says the success of Zantac was important in setting the right psychological tone among the research staff. “Morale became high. Zantac gave the company a tremendous lift.” Company officials will not comment on exactly how this was done, although Gregory does indicate that “the intellectual boundaries of research and development at Glaxo have broadened considerably in recent years.” He adds that one key factor in this expansion is that there is now “far greater interaction between scientists of different disciplines.” Another Glaxo scientist, who spoke anonymously, confirms this. “I’ve worked on many different projects over the years,” he says, “and have always been able to pick up the phone and get help from people here in the company, sometimes forging new research collaborations [and] all without going through layers of management. This lack of bureaucracy means that we can be quick on our feet; it is a great spur to creativity.” But this same scientistcautions that to continue its string of successes the company must take care to preserve this atmosphere. As he puts it: “The important question for the future, however, is whether this climate will be allowed to continue now that the company is becoming much larger than before.” For their part’ Glaxo’s top brass aren’t counting on mere atmosphere to propel the company, which last year realized $3.6 billion in sales against Merck’s $4.2 billion, into first place. They’re embarking on a massive expansion to its research program. Future Plans Over the next five years, Glaxo is slated to double spending on R&D, which should reach $750 million by 1993. As ambitious as this sounds, however, it still appears to leave Glaxo in Merck’s shadow. The New Jersey giant will spend $650 million on R&D this year, a number which, if it continues to increase at its current rate, should top $1 billion by 1993. But Glaxo will be spending a lot more on its scientists than the additional $350 million in research. Over the same period of time Glaxo plans to invest an additional $1.8 billion in new research facilities around the world, including a sparkling new U.K. laboratory complex in Stevenage, near London, and additional scientific centers in the U.S. and Japan. To staff these new labs, Glaxo is hiring an additional 1,500 scientists—which should bring its total number of researchers to 5,500 by 1993. Of the current number, 2,800 are in Britain, with the rest largely in the U.S. and Italy. The complement in 1993 will be roughly 3,500 in the U.K., 1,000 in the U.S., and the remainder in Italy and Japan. Some onlookers believe such a huge expansion will be highly difficult to manage, and may lead to the innovative abilities of Glaxo’s scientists being buried under layers of bureaucracy. “They [Glaxo] will be spending money at a meteoric rate,” says Robin Gilbert, a drug industry analyst at James Capel, a London stock brokerage. “I wonder if it will be spent as wisely as it could be.” But any suggestion that Glaxo is being profligate receives a swift and pointed reply from Girolami. “If you are frightened by the emo- tional content of spending 15% of your turnover on research and development [the norm in the drug business],” he says, “then you shouldn’t be in the industry.” Peter Marsh writes about the pharmaceutical industry for the Financial Times in London.

What Are Glaxo Scientists Doing Right?

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