By Bloomberg
July 25, 2018

GlaxoSmithKline Plc is acquiring a $300 million stake in genetic-testing company 23andMe Inc. and revamping its approach to research as the U.K. drugmaker races to catch up with rivals in developing multibillion-dollar blockbusters.

With a four-year collaboration deal, Glaxo and Silicon Valley’s 23andMe said Wednesday they will tap genetic data to find new drug targets and better select patients for clinical studies. Hal Barron, a former executive at the biotech firm Genentech, is leading a new strategy that will focus on the immune system, genetics and investment in advanced technologies.

A doctor with ties to California’s tech hub, Barron is moving to reshape Glaxo’s hunt for medicines in areas such as cancer. He’s a key part of Chief Executive Officer Emma Walmsley’s plan to strengthen the British drugmaker’s pharma business by narrowing its focus on the best prospects.

Glaxo is addressing “a major issue for the pharma industry, which is the fact that there’s this incredibly low probability for success” among potential drugs, Walmsley said in a press conference. The 23andMe deal could be “transformational” in making the process more efficient, she said.

As costs of finding and testing drugs increase and successes become harder to achieve, more drugmakers are streamlining their research and development. Novartis AG CEO Vas Narasimhan has set a course to cut the failure rate for new products and boost efficiency with projects such as an operations center to predict enrollment and evaluate costs of clinical trials in real time.

AstraZeneca Plc has said that overhauling its research strategy improved productivity fourfold from 2012 through 2016. Like Glaxo, Roche Holding AG has also tapped into the promise that the Human Genome Project made possible 15 years ago with the first human DNA sequence, buying Foundation Medicine and its technology for testing cancers to find ways to treat them.

Glaxo also announced a restructuring program that will cost about 1.7 billion pounds ($2.2 billion) over the period to 2021. It’s expected to deliver annual savings of 400 million pounds during that time, which will be reinvested in R&D and for commercial support of new products.

New Executives

Glaxo last year ranked No. 11 among 13 big pharma companies in a Bloomberg Intelligence analysis measuring research-and-development returns, and investors have expressed concern about the company’s ability to boost productivity while also funding its dividend.

To rev up the hunt for new drugs, Walmsley lured Barron, who spent 17 years at Genentech and parent Roche, leading the development of a string of blockbuster treatments like Avastin for cancer. She also brought in Luke Miels from Glaxo’s closest rival, AstraZeneca, as the new pharma head. After tumbling 15 percent in 2017, Glaxo shares have climbed 18 percent this year. The stock rose as much as 2.6 percent in London.

Glaxo will seek collaboration opportunities around new technologies, while also focusing on machine learning and analytics, Barron, the new research president, said in an interview.The company is bringing in Sabine Luik from Germany’s Boehringer Ingelheim to lead regulatory affairs, in addition to key other R&D hires like Kevin Sin, who was previously known for overseeing oncology deals at Genentech, according to Barron.

Culture Shift

“We will be instituting not only new science and new technologies, but also trying to modify the culture to make it much more amenable to the kind of innovation I’ll be outlining,” Barron said. He is expected to accelerate development of early-stage treatments in oncology.

The 23andMe partnership reunites Barron with Richard Scheller, another Genentech veteran. It will initially focus on an experimental treatment targeting a protein shown in genetic studies to increase the risk of developing Parkinson’s, according to Barron, who previously led research at Calico, a California company funded by Google parent Alphabet Inc. Harnessing 23andMe’s data on Parkinson’s patients could allow the company to carry out a clinical trial much faster than if it sought to find patients on its own, he said.

The agreement with 23andMe “could substantially change the cost it takes to develop drugs, or put differently, we could develop twice as many drugs for the same amount of money,” Barron said. “We see it as critical to our future strategy.”

The two companies also could work together on programs 23andMe has initiated in areas including immunology, cancer, heart disease, skin disorders and liver disease, according to Scheller, who joined the startup in 2015 as chief science officer. 23andMe has grown from a seller of DNA kits into one of the world’s largest genetic databases and three years ago announced its ambitions to translate that information into new drugs.

A key dilemma for the industry is that only 10 percent of the targets that start in early-stage testing make it all the way to patients, according to Barron. Average costs to bring a new medicine to market surged to almost $2 billion in 2017, while big pharma companies have seen returns on R&D spending plunge, Deloitte LLP estimates.

“The idea of pursuing genetically validated targets provides us with an opportunity to have a significantly higher probability of success,” Barron said. “It also helps with pace. We’ll be able to do programs faster. So it will help with two or three of the biggest challenges facing our industry.”

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