After a spell of ill health, pharmaceutical giant GlaxoSmithKline (GSK) is starting to perk up.

For five years, mighty GSK saw its share price steadily decline, as its most profitable drugs, including Zantac and AZT, lost their patent protection. Meanwhile, the incoming blockbusters from its pipeline slowed to a trickle. As a result, its stock, which had been at nearly $60 per share in early 2000, fell to $31 in July 2002, then stayed in the $30 to $40 range for the next three years. Today, with the price back up to almost $50 on May 17, the company appears to have revived.

While pharmaceutical turnarounds typically stem from mass layoffs or marketing blitzes, Glaxo did it the old-fashioned way: with nose-to-the-grindstone research. What’s more, rather than doing all its own in-house research, it didn’t hesitate to partner with biotechnology startups.

As a result, a host of its drugs and vaccines have enjoyed successful launches and the company’s pipeline is brimming new potential winners.

“They have more than a dozen promising drug candidates in clinical trials,” says Joanna Chertkow, an analyst with DataMonitor. “And most of them come from biotech acquisitions or partnerships.”

Most promising right now is GSK’s vaccine division. First, it launched Rotarix, the first rotavirus vaccine since Wyeth pulled its version from the market in 1999, after a cluster infants experienced intestinal swelling from the vaccine. (The rotavirus is a diarrhea-causing virus that kills more than 600,000 babies a year, according to the U.S. Centers for Disease Control.)

GSK’s Rotarix alone could pull in billions in revenues, although it won’t be marketed in the United States or Europe any time soon. Rotarix is already available in Mexico and final negotiations with the health ministries of dozens of other countries, including India, Brazil, and Indonesia, are on the verge of wrapping up.

(For a behind-the-scenes account of the development of Rotarix, see The Vaccine That Almost Wasn’t in the June issue of Technology Review.)

Also, some time in the next 24 months GSK should finish up its Phase III trial of Cervarix, a vaccine for Human Papilloma Virus (HPV), a pathogen that has a direct link to cervical cancer. CEO Jean-Pierre Garnier has gone so far as to claim Cervarix could be the biggest-selling vaccine of all time. Analysts at Credit Suisse First Boston estimate it could pull in more than $4 billion per year. And GSK vaccines for Hepatitis B and herpes are also in the advanced stages of testing.

Many of the brightest stars in the company’s portfolio, though, are due less to the brilliance of its in-house scientists and more to its knack for finding the right research partners. And few of those partnerships promise to be as successful as its recent purchase of Corixa, a small Seattle-based vaccine firm. Their relationship culminated in a union in May, when GSK acquired Corixa for $300 million.

Corixa’s claim to fame has been its ownership of MPL, a compound used as an adjuvant (an immune system booster that amplifies the efficacy of a vaccine) in GSK’s hepatitis B, herpes, and HPV vaccines, all in late-stage clinical trials.

Initially, the purchase perplexed some Wall Street observers, since the royalty fees that GSK would need to pay Corixa for MPL were considered to be well under the $300 million acquisition fee.

“I estimate that, at most, they would have owed Corixa somewhere between $80 million and $100 million for MPL,” says analyst Phil Nadeau of SG Cowen Securities “This is a one horse company – there’s not much more to it besides MPL.”

But Andrew Heyward of Ragen MacKenzie thinks it’s not about the money: “Owning the company gives them control – and when you’re a multinational pharmaceutical with an important product launch, you want all the control you can get.”

More precisely, Glaxo wants to be able to ramp up production massively and quickly, says company spokesperson Gaile Rennegar.

“We want to be able to have enough supply to meet what we think is going to be excessive amounts of demand,” says Rennegar.

The small factory in Montana that Corixa was using to produce MPL couldn’t handle the kind of volume that a billion-dollar product demands; GSK now has the chance to either expand it or shift manufacturing to its massive vaccine factory in Belgium.

“The acquisition clearly points to GSK’s thinking that MPL is going to be used in a lot more vaccines than Cervarix,” says Chertkow at DataMonitor.

While Corixa executives declined to comment (referring all questions to GSK), its board of directors unanimously approved the purchase.

“I think they didn’t necessarily sell it at a good price,” says Nadeau. “The stock was badly beaten down and Glaxo got itself something of a bargain.”

Now that GSK owns Corixa, it controls one of the world’s most potent immune system boosters, which could go into many future vaccines. And rather than sharing those rewards with a partner, GSK is now in control of its destiny.