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GlaxoSmithKline: Masters of Innovation and Investment

Score one for innovation!

And emphatically, too.

By an 11 to 2 margin, the Food & Drug Administration’s Oncologic Drugs Advisory Committee just voted to pre-approve GlaxoSmithKline’s (NYSE: GSK) new cancer drug, Votrient.

At the same time, the panel unanimously rejected a similar drug by rival, Merck (NYSE: MRK) by 13 to 1.

Votrient treats patients with advanced soft-tissue sarcoma – a cancer that originates in bones, muscles, or tissues – and who’ve already undergone chemotherapy for the disease. These patients typically only survive about 12 to 18 months, according to the Associated Press.

It’s a somewhat niche area of medicine, too, because as Glaxo’s Senior Vice President of Oncology, Rafael Amado, states in the Philadelphia Business Journal:

“Treatment options for patients with advanced soft-tissue sarcoma are limited.”

This, despite the fact that the disease has a high fatality rate. The National Cancer Institute says there were 11,000 new diagnoses of soft-tissue sarcoma in 2011, resulting in 3,900 deaths.

And you can see why the panel pre-approved Votrient and rejected Merck’s offering…

What’s Three Months Worth to You?

Neither Votrient nor Merck’s drug, ridaforolimus, are intended to extend a patient’s life.

Well, not directly anyway.

Instead, they aim to improve “progression-free survival.” That is, slowing the rate at which the cancer regrows.

But the difference in success between Votrient and ridaforolimus was significant.

Studies showed that Votrient’s progression-free survival was 4.6 months, compared to just 1.6 months for the placebo – a three-month improvement.

By contrast, ridaforolimus only managed to extend the progression-free survival rate by a measly three weeks – from 14.6 weeks to 17.7 weeks. In addition, 60% of patients suffered side effects, which ranged from kidney damage, lung problems, high blood pressure and infection.

Hardly worth the risk, really. And 14% of patients agreed, electing to drop out of the study completely.

While Votrient also showed side effects, the panel said the “risk benefit assessment” swung more positively towards the drug, given that its progression-free survival improvement was much greater and because the drug also attacks another protein that causes cancerous tumors to grow, according to The Wall Street Journal.

As Dr. Mikkael Sekeres, of the Cleveland Clinic, told the Associated Press:

“There are no drugs approved by the FDA specifically for this indication and that’s what drove my decision to vote yes.”

So with Votrient already approved for kidney cancer and now pre-approval granted for soft-tissue sarcoma, it’s the first successful step for Glaxo’s strong drug pipeline this year. Typically, the FDA usually rubber stamps full approval to drugs that its advisory panels have previously recommended. The scheduled approval date is May 6.

But Glaxo isn’t just forging forward in terms of innovation. The company is also making a significant new investment…

“Patent Box” Triggers Massive Glaxo Investment

Following the national British budget announcement on Wednesday, Glaxo revealed today that it’s making “one of the largest commitments to the life-sciences sector in recent years.”

Specifically, it will pump £500 million ($793.2 million) into the British manufacturing sector, broken out in three areas:

  • It will build a new, £350 million plant in Ulverston, northwest England – the company’s first new facility in Britain for 40 years. Work will begin in 2014, with the plant opening in 2020. The investment could eventually rise to £700 million, depending on what “continued improvements [are] in the environment for innovation in the U.K.,” as Glaxo CEO, Sir Andrew Witty, told BBC Radio 4.
  • Glaxo will invest £100 million to upgrade its two facilities in Scotland.
  • The firm has also invested £50 million into a British venture capital fund, designed to help startup healthcare companies.

In the process, Glaxo’s £500 million outlay will create 1,000 new jobs, which almost offsets the 1,500 jobs lost when Pfizer (NYSE: PFE) closed its R&D plant in southeast England last year.

The reason for this huge investment?

The “patent box.”

Announced in the budget, the introduction of the patent box is basically designed to spur British-based innovation and manufacturing and forms a crucial part of a big cut to U.K. corporate tax.

Under the new law, British companies that hold intellectual patents will see the tax rate on the profits they book from their patents reduced from 24% to 10%. The goal is to keep high-tech companies and skilled jobs in Britain, fueling economic growth as a result.

As Witty told the BBC:

“The introduction of the patent box has transformed the way in which we view the United Kingdom as a location for new investments, ensuring that the medicines of the future will not only be discovered, but can also continue to be made here in Britain. The combination of the patent box, combined with falling corporation tax, has really changed the position [of the U.K.].”

This is essential for Glaxo, as it’s already Britain’s largest private sector R&D investor, spending £1.8 billion in the country on it each year and £4 billion in total, according to The Wall Street Journal.

As my colleague, Louis Basenese, recently showed, grabbing “profits from patents” – i.e. from the best and brightest innovative companies – is a tried-and-tested investment strategy.

Glaxo is one such firm. The stock is up 20% over the past year and it pays a $2.65 per share (5.8% yield) annual dividend, to boot.

Best regards,

Martin Denholm

Martin Denholm

, Managing Editor

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