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Even if your name is Bill Gates or Warren Buffett, $3 billion is a lot of money.
And even if you're finding that the years fly by as you get older, 12 years is a long time.
Yet, on average, that's what it takes for a biopharmaceutical company to develop a new drug from discovery stage to pharmacy shelves.
Moreover, the ratio of researched treatments to eventually approved therapies – at somewhere between 5,000-to-1 and 10,000-to-1 – may be even more depressing for drug developers.
However, if all goes as planned – if a drug makes it into your medicine cabinet – then they'll make that money back… and more. Particularly if they come up with a real blockbuster.
But still, so much vital R&D money goes down the drain.
Little wonder then that a major drug player might want to realign its operations to be less focused on the boom-and-bust cycle of drug research.
Today, we'll explore a Big Pharma leader that's doing just that.
It got started on this move three years ago.
It just made a big promotion that will serve as a further catalyst in this same direction.
When Politics Gets Involved
Biotech research used to be mostly focused on finding new treatments for all manner of diseases, from cancer and epilepsy to diabetes and respiratory infections.
Now there's another factor that life-sciences firms simply can't escape – politics.
For one thing, the Trump administration has made it clear it wants to combat the rising price of prescription drugs. In fact, this was one of the few issues Donald Trump and Hillary Clinton agreed on during the 2016 campaign.
It also explains why the bellwether iShares Nasdaq Biotechnology Index (Nasdaq: IBB) is up only 1% over the past six months, a period during which the S&P 500 gained nearly 10%. Wall Street is worried about the impact all of this will have on profit margins.
Caught between the high cost of bringing new drugs to market and political pressure, you understand why some biopharmaceutical firms are focusing on other things – like cosmetics or drugs sold over the counter.
A firm we have talked about a few times in the past made that very move nearly three years ago. In light of recent events, our focus on that company and its corporate moves seems rather prescient.
GlaxoSmithKline Plc. (NYSE ADR: GSK) decided back in 2014 to smooth out its cash flow and R&D spending by moving into consumer healthcare. It did so by paying $20 billion for a big chunk of the consumer healthcare and vaccines units from Novartis AG (NYSE ADR: NVS).
And just last week, GSK handed investors what promises to be a strong catalyst for the stock – a new CEO.
A Powerful Pedigree
Emma Walmsley, the firm's new chief executive officer, knows how to target global consumer markets. She spent 17 years at Paris-based L'Oréal SA (OTCMKTS ADR: LRLCY), which sells its cosmetics brands in more than 100 countries and has more than 26.5 billion euros in yearly sales.
And Walmsley's final three years at L'Oréal were in China, building a sales team that targets the world's fastest-growing major consumer economy. In 2010, Advertising Age suggested she would soon be tapped for a senior role at L'Oréal.
But, as she said in an interview with Fierce Biotech, a casual lunch with the CEO of GSK that year "ended up spiraling into a job offer alarmingly fast."
She joined Glaxo in 2010 and would soon oversee its entire consumer healthcare division, which includes brands ranging from Aquafresh… to Nicorette… to Tums. It's been a strong area of growth for GlaxoSmithKline, as this division's sales have risen from $6.7 billion in 2014 to $8.9 billion last year. In that time, the division's profits have surged a stunning 86%.
So making Walmsley CEO now, with her global experience and proven growth track record, is a very smart decision.
Bolstering the Bench
But Walmsley has no intention of stepping off the gas on the firm's all-important pharmaceuticals division.
That's why she brought in Luke Miels in January.
Miels had been the head of AstraZeneca Plc.'s (NYSE ADR: AZN) European division.
Walmsley made her intentions clear. Miels, she said, will "bring a strong new voice to the decisions and choices we will have to make for our pharmaceuticals business."
Miels inherits a unit that has $20 billion in yearly sales, and he arrives at a crucial time. Glaxo has a number of drugs that are headed to commercial launch. It also has a deep pipeline of drugs still in development.
In his time at AstraZeneca, Miels built a reputation as a leader who understands how to both nurture early-stage drugs and also launch treatments commercially in the most effective way.
And he has a knack for striking the right partnerships with up-and-coming biotech firms…
Like I said, Glaxo is on track to remain a major player in cutting-edge life sciences.
For instance, it's been pushing hard to become a major player in the immunotherapy market. A whole new class of drugs are emerging that use our own immune system to combat disease.
It's a far smarter method than the standard chemical-based pharmaceutical approach, which brings lots of unwanted side effects.
Just the cancer market alone is huge for this new field. Allied Market Research says the immuno-oncology market will become a $110 billion market by 2020.
Glaxo is boosting its own research in this area with some very savvy partnerships. For example, it has a stake in Adaptimmune Therapeutics Plc. (Nasdaq ADR: ADAP), which is developing a promising class of new drugs focused on T-cell receptors. These receptors seek out proteins in cancer cells and can inhibit their growth. In addition to lending a hand with R&D, GSK also aims to profit from its exclusive sales rights if Adaptimmune's approach hits its target.
Also in immunotherapy, Glaxo is sharing much of its R&D results with Merck & Co. (NYSE: MRK), which could make both firms big leaders in the new growth market.
Then there's "bioelectric medicine." GSK is making big push into this new field as well. This approach uses electrical signals to alter the body's basic functions. Take, for example, a child with asthma. With bioelectronics, doctors could wrap tiny devices around nerves in the lungs. Employing those devices, doctors could then alter nervous electric signals in order to ease tension in the lungs
If everything goes right, no more asthma…
Last August, Glaxo struck a $715 million deal with Alphabet Inc. (Nasdaq: GOOGL) to form a new company called Galvani Bioelectronics. This new firm will develop miniaturized implantable devices that can modify electrical nerve signals. Diabetes and arthritis are also emerging as potential targets for this approach.
We already know that bioelectronics work. Pacemakers have been using them for quite some time, and doctors have had great success in the area of deep brain stimulation.
The goal here for Galvani is to develop much smaller devices that can target even more localized parts of the body.
Now and Later
Glaxo's new executive team understands the need to balance the demands of today and tomorrow.
They're focused on containing costs now, which should help profits rise nearly 10% this year. And they're committing nearly $3.5 billion yearly R&D to make sure the firm retains a cutting-edge drug pipeline in the future.
With shares trading around $41.50, GSK has a $100.56 billion market value.
I think we can look for 20% growth in our shares in the next year or two – and triple-digit returns not too much longer after that.
This is a firm that has wisely hedged against the most challenging aspects of the changing drug industry by strongly focusing on both its cutting-edge biopharmaceuticals and its cash-producing consumer products.
Plus, we have a new CEO catalyst for the short run and a path that offers the firm and its investors rising profits for the long haul.
That's a nice mix of risk and safety that can't miss.
It's a stock you can count on to fill your retirement coffers.
Because sometimes the road to wealth is paved by tech – and toothpaste.
- Strategic Tech Investor: How to Profit on the $200 Billion Immunotherapy Market.
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- Strategic Tech Investor: The Road to Wealth Is Paved by Tech.
The post Sometimes the Road to Wealth Is Paved by Tech – and Toothpaste appeared first on Strategic Tech Investor.
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.