GSK’s new R&D head bets on genetics with $300 million 23andMe deal

LONDON (Reuters) – GlaxoSmithKline’s new research boss aims to turbo-charge the British group’s drug discovery engine with a $300 million bet on genetics by buying a stake in the Silicon Valley gene testing company 23andMe.

The move, announced by Hal Barron alongside better than expected financial results on Wednesday, secures GSK exclusive access to the Google-backed firm’s vast DNA database, which it hopes will help unlock new treatments for a range of diseases.

It won’t yield new products overnight but Barron believes it will accelerate GSK’s drug development work, which has lagged behind rivals in producing multibillion-dollar blockbuster drugs.

GSK’s pharmaceuticals business – its biggest unit – has seen sluggish growth in recent years and the group reported flat overall revenue in the second quarter.

However, the quarter was slightly better than analysts had forecast and the company raised its outlook for earnings growth in 2018, due to strong sales of new shingles vaccine Shingrix, benefits from taking full ownership of consumer health and delays in U.S. generic versions of its lung drug Advair.

Chief Executive Emma Walmsley said she was “increasingly confident” GSK would deliver mid to high single digit percentage earnings growth out to 2020.

The shares rose 1.5 percent following the results.

While 23andMe is best known for saliva-based test kits that offer users a glimpse into their genetic ancestry, it also has a three-year-old drug R&D unit, whose efforts will now dovetail with those of researchers at GSK.

And with more than 5 million customers, 80 percent of whom have opted in to participate in research, it has a trove of information about the links between genes and disease.

“Human genetics is going to represent a core component of our drug discovery strategy, so 23andMe is a terrific partner for us to jump-start our efforts,” said Barron, who joined GSK in January.

“By studying genetically validated targets we think we can cut the cost of development in half or, putting it a different way, develop twice as many medicines for the same price.”

The first project will focus on an experimental GSK pill for Parkinson’s disease. It is linked to a specific gene mutation and 23andMe has already identified hundreds of its users with the right genetic profile.

The 23andMe transaction marks Barron’s first deal to bolster pharma R&D, and it is unlikely to be his last. “We’ll be looking for opportunities moving forward, but we’re going to keep a pretty high bar,” he told Reuters.

PHARMA TURNAROUND

Walmsley has made her top priority turning around the pharmaceuticals division, which analysts see as a prerequisite for any future spin-off of the consumer health business – a move advocated by some investors.

That puts Barron – a veteran of Roche’s successful Genentech unit – at the center of the next chapter in GSK’s story.

The British drugmaker is not alone in tapping modern genetic data. Competitors including Roche and AstraZeneca have already made similar moves.

But by working with 23andMe it can now scan the world’s largest human genetic database with associated health records, according to the privately owned firm’s therapeutics head Richard Scheller, who used to work with Barron at Genentech.

Barron will set out more details of his R&D strategy on Wednesday in a presentation that is likely to overshadow the latest quarterly results. His strategy will focus on science related to the immune system, the use of genetics and investments in advanced technologies.

Currencies and pricing pressure in respiratory medicine are both creating headwinds for GSK this year, although its new shingles vaccine is enjoying strong demand.

GSK’s overall sales in the quarter were 7.31 billion pounds, producing adjusted earnings per share (EPS) of 28.1 pence. Analysts, on average, had forecast 7.21 billion pounds and 26.1 pence, according to Thomson Reuters data.

For the full year, the company said EPS in constant currencies would grow 4-7 percent if generic copies of Advair hit the U.S market by Oct. 1. Without generics, earnings would be up 7-10 percent.

The timing of generic copies of its blockbuster lung drug arriving in the United States is a big uncertainty in 2018, after copycats failed to launch in 2017 because U.S. regulators knocked back applications.