Profit drops; GSK to cut jobs

The drug maker expects to save $1.4 billion a year. Most cuts are expected in sales and manufacturing

GlaxoSmithKline will cut jobs over the next three years to save as much as $1.4 billion annually, as the British drug maker tries to counter slowing sales.

GSK employs about 6,000 at a U.S. headquarters, a research and development center and a manufacturing plant in the Triangle. Officials wouldn't say how many jobs would be lost but expect the cuts to hit hardest in sales and manufacturing.

The projected savings, which the company announced Wednesday along with weaker-than-expected third-quarter earnings, would allow for more research and development spending on some new medicines, chief executive Jean-Pierre Garnier told analysts.

Profits fell 5.8 percent for the third quarter, partly because sales of GSK's two top sellers, asthma inhaler Advair and diabetes treatment Avandia, are under attack by rivals. The weak dollar also hurt revenue and profit. GSK generates about half of its revenue in the United States but reports financial results in British pounds.

"We regret that job reductions will be a necessary part of this program," Garnier, who is retiring as GSK's CEO next year, said in a prepared statement. "However, by making the changes we envision, GSK will be better placed to address the challenges we face in 2008 and be in a stronger position to create long-term value for patients and shareholders."

GSK will determine the size and structure of the job cuts and site closures after consulting with employees, Garnier said in a conference call. Sales staffing in growth areas such as vaccines and cancer treatments might expand, but those for chronic disease treatments, where sales are slowing, will be trimmed, he said.

The biggest cuts will be in sales and manufacturing, said David Stout, head of worldwide pharmaceutical operations, in a telephone interview. Each business unit will account for about 40 percent of the savings. Research and development will make up the remaining 20 percent.

Stout confirmed Triangle jobs are on the line, but he declined to provide further details. GSK has a twin U.S. headquarters in the Philadelphia area and about 100,000 employees worldwide.

"There's no one city, no one country, no one area where we're not looking," he said.

The first plant to close will be in Cidra, Puerto Rico, which employs about 900.

The cash saved by restructuring will be used to boost research and development of new vaccines, cancer medicines and biotech treatments, Stout said.

GSK follows other large pharmaceutical companies Pfizer, AstraZeneca and Bayer in cutting jobs in sales and R&D, said Charly Travers, a research analyst with The Motley Fool.

"It's not just [GSK]," Travers said. "It's a business that ebbs and flows. Right now, they're in a lull."

GSK reported revenue of 5.5 billion British pounds ($11.1 billion) in the three months ended Sept. 30, down about 3 percent from the same quarter a year ago. Profit declined to 1.3 billion pounds ($2.7 billion). The unfavorable currency exchange rate shaved about 5 percentage points off the earnings.

Avandia sales continued to erode in the third quarter, dropping 38 percent. With about $3.3 billion in worldwide sales last year, the diabetes pill was GSK's second best-seller until the New England Journal of Medicine published a study May 21 linking Avandia to an increased risk of heart attack.

The Food and Drug Administration has yet to decide whether to add a tough warning of the heart attack risks to Avandia's packaging information -- the strongest possible step short of pulling the drug off the market.

Many patients who stopped taking Avandia switched to a rival drug, Actos, made by Takeda Pharmaceutical. Following an FDA decision on a "black box" warning, which may also effect Actos, Avandia sales could recover some, analysts said.

But Avandia is largely considered damaged goods, Travers said. He is betting on Cervarix, a vaccine to prevent cervical cancer, to make up for lost Avandia sales. GSK plans to begin selling the vaccine in this county in January.

Cervarix is one of about 20 new vaccines and medicines GSK hopes to bring to market during the next two years.

Sales of GSK's Advair also are under pressure from a rival asthma inhaler that AstraZeneca introduced in June. GSK reported a 7 percent increase in Advair sales in the third quarter, down from 12 percent in the previous quarter. Advair sales in the United States were about 3 percentage points lower than GSK had estimated.

GSK's American depositary receipts, which are like stock for publicly traded foreign companies, closed at $51.31 Wednesday, down 77 cents.