Our R&D organization is a little bit different from many. That is one of the challenges that we have in GSK that others may not have. We have therapeutically aligned centers of excellence for drug discovery (CEDDs) in Europe, in the United States, and in China. So you begin to see the geographic diversity of our R&D organization.

In each CEDD there are multiple discovery units, which focus on specific biochemical pathways or specific biological targets. Sometimes it is a biochemical pathway and trying to intervene in that pathway, and sometimes it is a very specific protein that we are trying to design a molecule to modulate.

There is extensive externalization at GSK via partnerships with biotechnology companies. This has been much publicized in the popular press, regarding GSK strategy and externalization. I am going to get a little bit more into that. It is one of the dynamics that is important for us to consider and perhaps for you to consider when you think about your remit in this organization.

We have a very clearly stated strategic intent: to globalize our research. We have acted on that strategic intent tactically, where we have set up a fully integrated functional R&D organization in Shanghai, China. The intent of that organization is not to develop drugs for China but to develop drugs for the world. The organization was set up in June of last year (2007). By June of this year (2008) we had over 270 employees in that research laboratory in a new building and construction of an additional building.

I am giving a perspective on GSK. Any global major pharmaceutical company now will have a similar story. But we are not typical. There are other pharmaceutical companies looking at how we organize, and going from big R&D units to small R&D units, essentially taking advantage of the wisdom of a crowd of discovery units as opposed to that of a single monolithic discovery unit.

With regard to our R&D units, there is a great deal of complexity related to the core processes that we use in conducting our work and delivering our products. We have an extensive network of research facilities in the UK, three in the US, France, Poland, Croatia, Italy, Spain, Singapore, Shanghai, and Canada. This creates opportunity for us to take advantage of the science occurring in these geographic regions. For example, our interest in Croatia was a very specific platform that we felt would transform our ability to address a specific disease. We bought a company in Croatia and have made them a bit entrepreneurial. They are now exploring opportunities to address a specific disease target.

Not all of these sites are fully integrated from discovery all the way through commercialization. The UK sites are, but the Ireland site is not. Italy is, but Spain isn’t.

Trends in the Pharmaceutical Industry

There is a mix in a pharmaceutical organization, a confluence of behaviors and attitudes and regulations and cultures. A modern pharmaceutical R&D organization is always going to be driven by innovation and risk taking. This is



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