Should pharma R&D and commercial "just be friends"?

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Amidst the pharma deal-making news over the past week, the most innovative development was GlaxoSmithKline’s decision to sell its oncology marketed portfolio to Novartis, but hold on to much of its early-stage R&D. Although large pharma companies often exit entire diseases, I’m not aware of any prior case of a global player continuing R&D in an area after giving up its own commercial operations. But that’s apparently GSK’s plan, as related by FierceBiotech’s John Carroll:

"On the oncology piece, we are very keen to stay in the early R&D space," GlaxoSmithKline CEO Andrew Witty told reporters Tuesday morning. "We haven't decided what we're going to do with those products but we have agreed with Novartis that they have a preferred status in terms of being able to talk to us if we take the view that we want to commercialize with someone else, but it doesn't rule us out commercializing it ourselves."

This is the type of language one usually hears from a venture-backed firm, not a global pharma. So, by dissociating R&D from internal commercial activities, has GSK’s oncology R&D unit become more “biotech-like”?

If “biotech-like” means the R&D team will now succeed or fail on its own merits, then definitely. Without a guaranteed buyer for its output (in the form of an in-house commercial group), the value of GSK’s oncology R&D division will be measured by the market, in terms of the deals it attracts and how efficiently it uses time and capital to get them. If pushing accountability down into the organization is the missing ingredient in big pharma pipeline productivity, then this move is the natural extension of GSK’s ongoing efforts to reclaim its (and the industry’s) R&D mojo.

But beyond the potential psychological effect on the pharma research organization, this move could open the door to an array of new options to “mix and match” R&D and commercial activities. If GSK can maintain an oncology R&D group without an in-house commercial organization, why not keep a commercial force in a therapeutic area without any internal R&D efforts? By uncoupling R&D from commercial, a large pharma could decide its strategy for each component separately, providing more flexibility on where and how to invest resources.

In fact, some companies might reap the greatest benefit from dissociating R&D from commercial, but keeping both activities in-house. An internal commercial team could be “just another potential partner” for its cognate R&D group, which would be free to seek the best deal with its corporate sibling or anyone else. By putting a market value on internal assets, the commercial organization could pass on agents from the company’s own pipeline (which are currently foisted upon it, albeit for "free") when it might instead prefer to buy a superior competitor. At the same time, the R&D group’s assets would reap their just rewards on the open market, just like those produced by biotechs. Each division would control its own destiny, and live or die by the returns it generated.

Pharma old-timers may carp that this model gives short shrift to the benefits of synergy and scale that come from having R&D and commercial integrated under the same roof. But in fact, for years the industry has been hard-pressed to demonstrate the financial or strategic value of those benefits to shareholders. GSK’s experiment may not be right for all companies, but hopefully it will lead many large pharma boards to think more creatively about how to ensure their businesses’ survival and success.