It has been a miserable year for the British drug giant GlaxoSmithKline. Its shares have gone nowhere (and declined 20% since late 2005), its sales are all but stagnant, and its news feed is a depressing drumbeat of legal and public relations woes. The Avandia story just gets darker: In February Senate investigators accused Glaxo of minimizing data that its diabetes drug caused heart problems; seven months later regulators heavily restricted Avandia's use in the U.S. and took it off the market entirely in Europe. In October Glaxo paid $750 million to settle charges it produced tainted drugs. Last month Food & Drug Administration advisers rejected its bid to get a drug approved for preventing prostate cancer. The company's huge-selling asthma inhaler, Advair, could face knockoffs in a few years. Glaxo's labs have not produced a big new hit in ages.  "This industry is under huge pressure," says Andrew Witty, GSK's chief executive, in a lightly accented British baritone. "There is no point in dreaming about being in a different world. We have to change." The 46-year-old, one of a new generation of drug CEOs, came to power in 2008 after holding various marketing positions in Asia, Africa and Europe. His blunt diagnosis: Drug companies became "complacent" in the 1990s. They were slow to react when insurers rebelled against me-too drugs and regulators became more worried about side effects.  His solution is to focus on customers and diseases that the industry long ignored, while rebuilding research from the ground up. Shunning megamergers, Witty has shifted resources toward emerging markets that are eager to get access to Western drugs, and to stable markets like vaccines and consumer products. Today only 23% of GSK's $44 billion in annual sales comes from selling pills in big Western countries, down from 40% in 2007, while 24% of sales comes from emerging markets, which are growing at an 18% clip.  Witty hopes this will stabilize the company until his research overhaul comes through. "Before, the whole thing depended on having breakthroughs, and if you didn't have breakthroughs it was downside risk," Witty says. But no matter how much he spins it, there's no avoiding the essential nature of the drug business: Big growth will come only if Glaxo's labs come through with new medicines.  Witty has abandoned me-too drugs--shutting down research into depression, anxiety, pain and other mature categories--and created 40 tiny biotech-style units that have autonomy. They are focusing on the types of high-risk science that a few years ago would have been seen only at innovative biotech companies with nothing to lose. Glaxo has projects on everything from stem cells to gene therapy for rare immune diseases to an emerging area called epigenetics, which looks at how genes are modified.  With the notable exception of a once-a-day successor to asthma inhaler Advair, almost all of the 18 new drugs in late-stage trials are totally new classes of medicines. One aims to become the first treatment to delay the progression of Type 1 diabetes in newly diagnosed kids and adults. Another is a vaccine to prevent lung cancer from recurring; it could open up a whole new wave of treatments that stimulates the body's immune system against cancer. A third could become the first drug in a new class to prevent heart attacks by stabilizing plaque in arteries. This could hit $10 billion in sales if it works.  Glaxo's first big success may come early next year, if its new lupus drug, Benlysta, is approved by regulators. It would be the first new drug for the autoimmune disease in 50 years. While GSK's partner Human Genome Sciences invented the drug, Glaxo invested in HGS' gene-hunting technology back in 1993 and stayed the course even after murky early results. With little competition, it could reap $5 billion in sales despite its modest effectiveness, analysts say. Glaxo will get half the profits. Says Witty: It "has the potential to be transformational."  The ever cautious Witty won't make sales forecasts but says underlying revenue growth is 6% when Avandia's decline and other one-time events are excluded. He adds: If any of the new pipeline drugs comes through, "the upside opportunity for the company is enormous." The pressure to produce is intense, he admits. He says investors ask him, "Andrew, you spend $6 billion a year on R&D. Are you concentrated on what you're doing with it, or is it just a black hole?"  Some people, at least, are buying the argument. "Glaxo has the best, the brightest, the most booming pipeline in the industry over the next three years," says UBS analyst Gbola Amusa. "Its lower U.S. exposure and higher emerging markets exposure is exactly what you want" at a time where most growth is coming from abroad. He predicts that Glaxo's sales will grow at a 7% clip over the next five years, versus 3% or 4% for the rest the industry.
GlaxoSmithKline Chief Andrew Witty has a plan to save the struggling drugmaker: Turn it into a collection of entrepreneurial biotech outfits.