Its no secret thatAstraZeneca(LSE: AZN) andGlaxoSmithKline(LSE: GSK) are struggling to grow. Both companies are trying to offset declining sales of legacy drugs by branching out and reinvigorating their development pipeline, which is taking time.
However, the two groups are now, along with peers from around the world, embarking on a great crowd-sourcing experiment to tryrekindle old flames.
Working together
Developing new drugs is a hit or miss business. Treatments that have taken years to develop can fall at the last hurdle, or be pulled because theyre not economically viable. In most cases, development of these treatments has sucked in millions of pounds in research and development spending, to no avail. Whats more, pharma companies closely guard their research so if a treatment fails, theres usually no second attempt by another party.
But now, seven of the worlds leading pharma companies, including Astra and Glaxo, are getting together to pool their resources and put together a library of 68 compounds that have failed to make it to market.
The theory is thatby pooling resources, a use for these compounds will be found. In other words, someone somewhere will have the key to unlock the puzzle, finish development and commercialise the product.The compound library will help the companies share research and leverage their experience in certain fields.
This is part of a huge drive by drug makers to increase productivity from R&D departments. Indeed, Astra and Glaxo are both looking to move away from the blockbuster drug mentality, whereby one main drug makes up the vast majority of company sales. Instead, they are trying to develop a portfolio of key treatments.
Not only will the compound library lead to a wider variety of treatments being discovered but it should also encourage R&D, as the vast majority of work on existing compounds within the library will have been done already. Its much easier to adapt a compound that has already been created, rather than create one yourself!
In progress
The compound library is already attracting plenty of attention and follows a deal earlier this year betweenThe Medical Research Council (MRC) and Astra. This particular deal saw Astra make 22of its chemical compounds available free-of-charge to scientists.
Astra had already begun testing these compounds but had put their development on hold. Scientists from the MRC will work on the compounds and carry out medical research, leaving Astras R&D team free to work on other things.
As of yet, its unclear which party will commercialise the products if the research yields results, although the MRC is unlikely to chase development, which leaves Astra as the only viable alternative.
Long-term outlook
Astraa and Glaxos move away from the blockbuster drug mentality, towards a more co-operative and open business model, is great news for the two companies and sector in general.
Sharing technology will increase the change of a new product being discovered and will free up some research teams. This should boost sales growth over the long term.From an investors point of view, this is extremely important. You see, developing a product for several years, spending millions and tying up a research team is inefficient. So, sharing resources reduces the risk that money and time will be wasted. Whats more, Glaxo and Astra will both be able to cut costs, as they share resources, boosting margins.
Then theres the issue of increasing sales. New products, discovered through collaboration can be sold, offsetting the decline in legacy sales. All in all, there are multiple financial benefits to be had from this deal and it should boost Astras and Glaxos growth sales, and earnings growth going forward. Shareholders will benefit through higher earnings and even dividends.
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Rupert Hargreaves owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
