Glaxo U.S. Pharma Head Says 'Unfettered Pricing' Days Are Gone

  • Focused on making operations 'faster, better, cheaper:' Bailey
  • Glaxo could consider split, but still a few years off

As drugmakers face rising criticism for boosting prices, GlaxoSmithKline Plc’s U.S. pharmaceuticals president Jack Bailey is working on bringing new drugs to market as efficiently as possible.

“The days of unfettered pricing are long gone,” Bailey said in an interview at Bloomberg’s headquarters in New York. “There is still price being taken, but in all likelihood it’s going to continue to come under deep, deep scrutiny.”

The whole industry has been under fire in recent months after companies like Turing Pharmaceuticals AG and Valeant Pharmaceuticals International Inc. jacked up the prices of old drugs in the U.S., where there’s no government control on pricing. Without the help of price increases, drugmakers like London-based Glaxo must focus on improving research and development productivity and making manufacturing more efficient, Bailey said.

“We have got to make sure we do everything faster, better, cheaper,” he said. “If you’re a pharmaceutical firm and you’re not looking soup-to-nuts at your operations about how you do a better job of still getting great innovation, but getting it out there as efficiently as possible, you’re going to get left behind.”

Glaxo’s respiratory franchise, led by top-selling drug Advair, has struggled after the introduction of competitors’ lung products, such as AstraZeneca Plc’s Symbicort and Merck & Co.’s Dulera. Advair sales may fall 20 percent in the U.S. this year, based on current trends, company executives said on a conference call this month. 

Bailey pointed to new respiratory products like Breo, Anoro and Nucala as some of the drugs making up for Advair’s declines. Revisions to the company’s compensation program for U.S. salespeople reduced its complexity and helped drive the performance of newer drugs, he said.

The stock has dropped 11 percent in the past year in London, prompting some investors to call for a split of the company.

Glaxo is willing to consider a breakup, although that may not happen for a year or two, Chief Executive Andrew Witty said last month. The company has three divisions: pharmaceuticals, vaccines and consumer, which sells household products like Theraflu cold and flu remedies, Sensodyne toothpaste and Excedrin painkiller. Glaxo would consider its options after it’s done integrating a deal with Novartis AG that closed in March and bulked up its vaccines division, the CEO said at the time.

“We feel good with our strategy, we think it’s playing out. We know we still have two more years to embed and meet all of our Novartis asset-swap and integration milestones,” Bailey said Thursday. “At a certain point after that, once it’s all embedded, it’s natural for us to step back and say, ‘OK, what do we do then?”’

Still, there are benefits to having all three businesses under one umbrella because they share capabilities and offer diversification, Bailey said.

“For us, the synergies outweigh some of the pushback from others,” he said, referring to investor pressure to consider a breakup.

At least two stockholders have called for a split. Joe Walters, senior fund manager and manager of the Royal London U.K. Income With Growth Trust, said Glaxo should consider spinning off its consumer-health division. U.K. fund manager Neil Woodford suggested the drugmaker split up and divest some portions of the business.

The consumer-health industry is fragmented and consolidating. Among others, Reckitt Benckiser Group Plc is seeking to expand its consumer-health products. CEO Rakesh Kapoor said in December he would consider acquiring Pfizer Inc.’s portfolio were it to come up for sale in the wake of its merger with Allergan Plc.

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