Witty insists GSK's safe approach, backed by innovative pipeline, is the way to success

GlaxoSmithKline CEO Andrew Witty

GlaxoSmithKline CEO Andrew Witty continues to take heat for moving the U.K. drugmaker heavier into low-margin areas like consumer health and vaccines. But he continues to insist he has it on the right track, that Glaxo ($GSK) has plenty of new drugs on the way that will be first-in-class and sidestep the high price backlash that some competitors are facing.

Witty at an event in London Thursday reiterated his stand that paying high prices for late stage drugs and then having to put exorbitant prices on them is not a sustainable strategy, Bloomberg reports. He called Gilead Sciences' ($GILD) hit with hep C drugs Sovaldi and Harvoni, which they got in the $11 billion buyout of Pharmasset, a "one in a thousand shot."

Gilead's $1,000 a pill price for the drugs did ignite a public debate and payer backlash that led it to start discounting them. But even with price cuts, the drugmaker is reaping huge rewards from the hep C cures. Analysts have pegged sales at $17 billion for Gilead from the treatments next year.

Most of these kinds of deals are problematic, Witty said, and that is why GSK is choosing to look for more affordable early stage candidates and to forge partnerships with universities to find what it needs. That has yielded for GSK a pipeline, 80% of which is made up of first-in-class drugs that he will highlight during an investor day next month, Witty insists. 

The CEO, who for years has predicted bad things from the trend of relying on ever escalating prices, has steered GSK toward a safe and steady, high volume, low margin approach with an emphasis on OTC products and vaccines. He cemented that with a large asset swap with Novartis ($NVS) last year that traded off GSK's oncology drugs in exchange for more heft in those two areas.

The drugmaker in its last quarter reported a 6% rise in revenues to £5.89 billion ($9.19 billion), with vaccines and consumer health chipping in. Its pharma unit sales were off 6% on a pro forma basis. And its earnings per share plunged 77% compared with the year-ago period. The overall results led Bernstein analyst Tim Anderson to call the quarter "unremarkable." 

Witty may very well turn out to be right about the backlash on escalating drug prices. The trend is drawing more attention as Democratic presidential candidate Hillary Clinton and members of Congress call for reforms. Drug lobbying group PhRMA today even criticized the pricing strategy of Valeant Pharmaceuticals ($VRX), one of the companies at the center of the controversy. But some analysts have raised concerns about Witty's moves and the question is whether his board will stick with him long enough to find out if the CEO is on target. 

- here's the Bloomberg story

Related Articles: 
GSK defends low-margin strategy with a gloomy outlook for high drug prices 
'Volume' is the magic word for Glaxo as it works to turn sales around 
Embattled GSK scraps ViiV spinoff as pharma revenues tumble 
Hampton steps into GSK chairman role as discontent with Witty builds