More R&D cuts ahead for GSK

GlaxoSmithKline, one of this region's largest private employers and the foundation of North Carolina's pharmaceutical industry, will continue to shrink.

The British company that sells a wide range of products such as the Advair asthma treatment, weight-loss aid alli and Aquafresh toothpaste, is slashing costs as generic rivals hurt sales of blockbuster drugs.

CEO Andrew Witty announced Thursday morning that GSK plans to expand previous cost-cutting efforts by saving nearly $800 million more a year by 2012 than previously planned. Half of that savings will come from reducing research and development spending, which will affect its R&D hubs, including the one in Research Triangle Park. The other half will come from slashing general expenses.

As with previous cuts, the moves will hurt GSK's 4,900 local workers and this region's economy as high-paying jobs are eliminated. Witty and other executives said it's too soon to say exactly how many of the company's 100,000 employees worldwide will lose their jobs.

"Where possible, we will continue to try to preserve jobs," Witty said during a conference call. "We have to make choices. I don't like to see anyone leave the organization. But we need to look at ways we can improve our probability of success."

Reports first published in British newspapers this week had put the layoff total at 4,000 workers.

As part of its strategy shift, GSK will stop research into new drugs for depression and pain. It will focus on areas such as Alzheimer's, multiple sclerosis and Parkinson's. The company also will focus more resources on so-called orphan drugs for rare diseases and in fast-growing markets such as China and India.

"They're wrestling with how to change the business model to reflect market trends," said Richard Kouri, director of the BioSciences Management Initiative at N.C. State University's College of Management. Most big drug makers are trying to reinvent themselves as "quicker, more flexible companies, more like little biotechnology companies."

GSK announced the latest cost cuts as it released stronger results for the fourth quarter and full year. Fourth-quarter profit jumped 66 percent to $2.68 billion, while revenue rose to $13.03 billion. The results were bolstered partly by increased sales of H1N1 flu vaccines and the anti-flu drug Relenza.

For the full year, sales rose about 3 percent, the first annual growth since 2007.

Effects at RTP

GSK's local work force includes 4,200 people at its North American headquarters in RTP, about half on the R&D side, and 720 at a manufacturing plant in Zebulon. Over the past two years, GSK has cut 600 jobs.

Officials will announce more details about how they plan to reduce costs in coming months, said GSK spokeswoman Mary Anne Rhyne.

"The U.S. business will be expected to make a significant contribution to the savings goal," she said. "We do not anticipate any across-the-board reduction in force to meet that goal. We will be looking at how to reduce infrastructure costs. That includes employees, but also includes buildings and the overhead cost of doing business."

Worldwide over the next five years, GSK plans to exit about 11 million square feet of office space, or 13 percent of its real-estate portfolio. The company also will cut spending on maintenance, catering, security and other expenses.

Looking ahead

The good news is that GSK isn't going away, NCSU's Kouri said, because demand for new drugs and other products will continue to increase.

Another bright spot: Laid-off GSK researchers and managers could move on to help other, local drug companies or to start companies of their own, he added.

Most big drug makers, including Pfizer and Astra Zeneca, are taking similar cost-cutting steps. The companies are shifting resources to where the growth and bigger profits will come such as China, India and Brazil.

"It's going to take a couple of years before we have a good idea of whether or not the industry's R&D machine is on track and more efficient," said Linda Bannister, who follows GSK's stock for Edward Jones. "The last thing you want to do is cut too much, and negatively impact the company's ability to grow over the long term."

Bannister rates GSK a "buy," saying that Wall Street investors aren't giving the company enough credit for its efforts to develop and acquire promising new drugs.

GSK will continue looking to buy promising experimental drugs and smaller companies to bolster its pipeline, Witty said. "We have a commitment to drive growth on a diversified, global basis."

Latest Comment View all comments

Images