R&D productivity

A Q&A with Dr Moncef Slaoui, Chairman of R&D

As we look to discover and develop innovative new medicines and vaccines, our primary goal is to do this safely and efficiently. Over the years, this research process has changed as science and regulations evolve and so how we approach this goal has also changed.

In 2007, we took a hard look at how we were seeking out these new medicines so that we could enhance our ability to feed into a late stage pipeline, while improving the returns we see on our R&D investment. 

Dr Moncef Slaoui, our Chairman of R&D, who has led this new direction, answers questions about how we approached considerations around return on investment and our R&D productivity.

How does GSK invest in R&D?

We are very conscious that R&D is an investment opportunity. Back in 2007, we decided to forget about R&D having a fixed budget, because when you have a budget, guess what you do with it? You spend it. R&D is no longer a budget for GSK. R&D is an opportunity to invest and find new medicines. This new approach means we have more to invest in late-stage development of new treatments in patients.

We think it is illogical to link R&D spending to a percentage of sales, because today’s sales are a reflection of R&D from 10 years ago and not of today’s R&D needs. Improving existing treatments, and discovering new treatments where there currently are none, is what drives our investment in R&D.

The early stages of R&D are an elective process. You trust the talent you have to evaluate the scientific opportunities as they exist. From that we decide to invest in those areas where the science looks to be in the right place, where there is the most potential to find new medicines and improve treatments for patients.

For our discovery organisations, this means we go where the science tells us, where the science is right for discovering a new medicine and where there is a medical need because there are either no existing treatments, or because those that are available are not adequately controlling all symptoms or affecting the disease process. This means that sometimes it might only be a moderately important medicine in terms of potential income, but a significant improvement in the treatment of a less common medical condition.

How does GSK balance investing in late stage vs early stage R&D efforts?

On average, we aim to have about a third of the overall R&D spend allocated to discovery. We also rely a great deal on collaborating with external partners in this early stage of research. Through this externalisation effort, we have about 50% of our discovery done internally and about 50% done outside the company.

What is your reported R&D return on investment?

In 2010, we said that we would aim to improve our internal rate of return (IRR) on R&D spending to 14% and at that time we said it was about 11%. The industry average is anywhere between 7.5% and 8%. 

To achieve this, we are working to reduce costs by guarding against late-stage failure of compounds in development. This is achieved by making early calls to terminate research programmes that have a poor chance of success.

In 2012, we disclosed that our IRR on R&D spend was approximately 12% and in our methodology of calculating the estimated IRR, we have only partially captured the decreases in our cost structure that came from significant reorganisation of our activities in 2009 and early 2010, but over time these costs will be reflected in the IRR.

What has contributed to the improvement in GSK’s reported R&D return on investment?

An improvement in the attrition of late stage assets is the single most important lever in enhancing our late-stage R&D productivity. There will be times when our research projects fail, but we cannot fail for reasons we could have predicted. We should fail for reasons we cannot predict. 

A more comprehensive discussion of R&D, including the strategy and investment in R&D can be found in the GSK Annual Report.