GlaxoSmithKline: The World's Biggest Biotech Startup?

With a market cap of more than $125 billion, GlaxoSmithKline (NYSE: GSK  ) is not only the U.K.'s largest pharmaceutical company, but it's also one of the largest drugmakers in the world.

On paper, it shares many of the typical characteristics of a big pharma company: attractive dividend, strong free cash flow, and several drugs in its pipeline. However, dig beneath the surface and you'll find a unique research and development structure that looks less like peers Merck and Pfizer and more like a fledgling biotech start-up. The company's scientists work in relatively small, interdisciplinary teams that are divided up into discovery performance units, or DPUs. Each DPU focuses on a single research project and has to reapply for funding every three years.

In the following video, Health Care Bureau Chief Max Macaluso and Bernard Munos -- a big pharma innovation expert and founder of the InnoThink Center for Research in Biomedical Innovation -- discuss GlaxoSmithKline's radical approach to R&D. A transcript follows the video.

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Bernard Munos: Then you have the GSK model, which is radically different. GSK can realize that it's difficult to create a hospitable environment to innovation in a big corporate structure. They looked at biotech, and biotech tend to be, on the whole, pretty good at coming up with innovation, so they decided, "We're going to create a biotech-like environment within GSK."

They took the monolith and they broke it up in DPUs, which are small biotech-like units, and they live or die by the innovation that they produce. They were widely dismissed by many people in the industry thinking, "This is a crazy idea. It's never going to work." Well, this year GSK has brought four drugs to market, so clearly something seems to be working for them.

It's going to take more evidence before one can declare victory. We're going to see what's happening next year and the year after that, but let's look at it the other way. You've got companies that used to produce one drug per year that haven't produced anything for almost 10 years, so I don't think it's appropriate to dismiss GSK's achievement. Clearly, what they've been doing seems to have motivated their scientists to come up with those four drugs and the rest of the pipeline.


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