EY: What do you see as the biggest challenges for dealmaking and capital allocation in the current business environment?
Chris Sheldon: Our industry has to keep reinventing itself with innovative R&D pipelines. That is how the healthcare innovation ecosystem works to ensure new medicines address patients’ needs. At GSK, we are using targeted Business Development (BD) as an opportunity to reinvest in the business, seeking potential new medicines which can launch at the backend of this decade or early next decade as we continue to grow our pipeline.
Any single pharma company on the planet can only account for a small amount of global innovation – there is always more going on outside our four walls than inside, it is a simple numbers game. This is true for GSK and all our peer companies. For most big pharma players, more than 50% of commercial products or pipeline assets come from business development in some form. We always look for the intersection of compelling science, patient need, a good financial fit and the right cultural elements as a ripe starting point for industry leading BD. Truly transformational opportunities are rare but when we find them we ruthlessly pursue them with speed and agility.
Public company M&A is challenging because if a company has great data their value often rises very quickly and it becomes very difficult for pharma BD teams to make the risk and reward calculations work. That is likely why we have seen limited public M&A this year. However, as the IPO market cooled down in the last few years, more companies are staying private for longer, advancing and de-risking their programs rather than seeking an early IPO exit. This means more de-risked innovations with clinical data, which is often the sweet spot for pharma M&A.
EY: In terms of potential M&A targets, how much importance do you attach to therapeutic area focus, compared to, for example, targeting new modality platform technologies?
Chris Sheldon: No one company can do everything. It is absolutely critical to scale and build strategic focus in core therapy areas. To scale a business in a given therapy area, you need deep subject-matter expertise; every therapy area is competitive and knowledge of the specific ecosystem and community is so important, from building relationships with key external experts to recruiting patients for clinical trials.
At GSK, we are investing deeply in areas where our pipeline has the greatest potential impact for patients: infectious diseases, HIV, respiratory/immunology and oncology. In all of these areas we are very well positioned to deploy the expertise and global capabilities necessary to create value for patients. We focus our strategy around product area leadership teams (PALTs), working at the intersection of R&D, commercial and medical to ensure a full cross functional representation of a given therapy area.
In today’s multi-modality era, with the rise of advanced modalities such as ADCs, oligonucleotides, T cell-engagers and others, you also need to find the best modality for a given target to ensure the greatest potential for patient benefit. In terms of platform deals we are interested if a platform is the right modality for a specific use case and clearly demonstrated with data. Specifically, a validated program with the right attributes including the ability to address an unmet medical need and disrupt standard of care with best or first in class credentials. The bigger picture is key here: we think in terms of disease area, unmet need, a compelling target with clear disease linkage, and, within that, which modality is right one for this target. Ultimately our goal in pharma is to get great medicines to market, I define those as one with great effect sizes and therefore the best way to achieve that is through a deep therapy area focus.
EY: What about digital technologies and AI? What role do they play as targets, or even within the BD process itself?
Chris Sheldon: Embracing advances in technology is core to our R&D strategy and we think in terms of two technology buckets. Firstly platform technologies, which are the technologies needed to discover, develop and manufacture medicines and vaccines. Secondly, data tech, which is the use of data to deeply understand human biology and disease mechanisms and to drive value-generating performance across our business.
In terms of BD specifically, we are a fundamentally relationship-driven industry where face-to-face debate at medical and scientific meetings, and speaking to investigators and clinicians, is core to our success. We are in the people relationship business, and technology will not replace those relationships, but it is a critical contributor to developing the right relationships. At every stage you need the best possible information to guide your business case with the human element infused to form the best partnerships built on trust and an aligned vision.
EY: How do you find the right deal in 2024? What factors do you look at in terms of possible partners, deal structures, different geographies?
Chris Sheldon: Partnerships for early-stage programmes are typically kept strategically aligned but operationally independent. What I mean is we ensure the partner is not distracted and the entrepreneurial spirit and dedicated focus of smaller companies are maintained. What is important is that either side of the partnership recognises their respective strengths and expertise.For M&A, higher levels of integration are often needed to extract full value from an acquisition, particularly assets needing parallel development for multiple indications where data and knowledge transfer is mission critical. We are also involved in other kinds of partnership, including academic collaborations and joint ventures. We see VC as an important part of the ecosystem for healthy and open debate. We consistently maintain our dialogue with the VC community as we scout the world for innovation.
At present, where we are searching for innovation has changed somewhat and that is leading to different deal structures. For example, China is an important of innovation, and we have seen pharma, biotechs and even VCs forming companies around assets from China. That will increase because the Chinese ecosystem is well-equipped to develop advanced modalities and to generate early clinical datasets which help to inform western development plans. Often the deal model is that the Chinese company retains the rights in China and the acquirer leads everything else, presenting an opportunity for both companies to leverage their strengths.
At GSK we are deal structure agnostic and always open minded however we would probably prefer a structure linking milestones to de-risking events along an asset’s life cycle from discovery to commercialization as value is unwound and risk clearly discharged. However, it is just a fact of life that the seller often dictates structure, not the buyer, and in order to be the preferred partner, you have to be somewhat deal-agnostic – and as I always say, ultimately, every deal is a snowflake.