Europe's biggest drug company, GlaxoSmithKline (GSK), saw its share price fall last week, despite unveiling details of its "product pipeline" for the next five years.
GSK's chief executive, Jean-Pierre Garnier, told London market analysts: "There is no doubt that after 2006, GSK will outpace the rest of the industry." But investors saw little prospect of immediate gain, with most of the new drugs years away from possible approval with regulatory hurdles still to overcome.
This week's newspapers suggested that GSK had shot itself in the foot when its vice president of genetic research, Allen Roses, told a scientific meeting in London that the "vast majority of drugs only work in 30 or 50% of people." It was reported on the front page of the Independent newspaper on 8 December .
But Navid Malik, analyst at Williams de Broë, said this was not news to institutional investors. "Other companies have been equally candid in the past with no ill effects."
After rising briefly, the share price fell 4% during the three days that followed its announcement as the media reacted unfavourably, pointing out GSK's reputation for losing drugs late in development.
The size of the pipeline was impressive, with 147 new drugs being tested, including 82 completely new molecules. But some of the most commercially promising drugs are to be delayed, most notably a dual kinase inhibitor for solid tumours known only as 572016, which will be filed for approval in 2005, a year later than expected.
GSK expects to file 14 new drugs between 2004 and 2006, a further 15 in 2007, and 22 in 2008. Mr Garnier said 20 of these drugs are potential blockbusters, which he defines as drugs whose peak annual sales are likely to pass $1bn (£0.6bn; €0.8bn).
But in the meantime, GSK could face some lean years, as generic competition bites into revenue from existing products. Analysts at Deutsche Bank have said the company will have to generate drugs with 2010 sales of at least £5.5bn to counterbalance the effect of patent expiries.
When GlaxoWellcome merged with SmithKline Beecham three years ago, the new company split its research department into several quasi-autonomous entities comprising about 300 scientists each. "We embarked on a radical re-engineering of the process, and we are delighted with the results," said Mr Garnier. "The better quality of the molecules we're getting out of the discovery engine will translate over time into a low rate of attrition by industry standards."
Keith Burdon, investment manager at Britannic Asset Management, said the City's negative reaction to GSK's presentation had been "a bit churlish." "As R&D days go, it wasn't a bad one—certainly better than the one two years ago. Given expected rates of attrition, the sheer quantity in the pipeline should make them an industry leader."
Stewart Adkins of Lehman Brothers agreed that the drop in GSK's share price was a market overreaction. "Certain drugs were being followed as markers of performance, and unfortunately for GSK it's precisely those drugs that turned out to be delayed. Our analysis, based on the whole pipeline, would put GSK's value up by about 4% since last week."
Mr Malik said that GSK was brave to move into cardiovascular medicine and oncology and to favour new compounds over new indications. "If you look at the clinical data, it's actually rather good."