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GSK profits soar, but CEO discloses major cuts

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RESEARCH TRIANGLE PARK, N.C. - GlaxoSmithKline PLC (NYSE: GSK), the world's second largest drug maker by revenue, reported Thursday that its fourth-quarter profit soared by 66 percent with a big boost from sales of swine flu vaccine.

However, even as the drug giant announced big profits, Chief Executive Officer Andrew Witty disclosed a series of cost-cutting moves, especially in research and development. Since last weekend, reports have circulated that GSK would cut some 4,000 jobs. It employs approximately 100,000 worldwide.

In the earnings report, Witty spelled out the following cuts:

“We are proposing to cease research in selected disease areas.

“Today, we have announced proposals to cease discovery research in selected neuroscience areas, including depression and pain. These proposals are subject to consultation.

“We will focus research activities in neurodegenerative and neuroinflammatory diseases (such as Alzheimer’s Disease, Multiple Sclerosis and Parkinson’s Disease) where we believe the prospects for successful registration and launch of differentiated medicines are greater.

“We are also looking to reduce R&D infrastructure costs.

“Today we have announced an expansion of GSK’s restructuring programme to deliver additional annual pre-tax savings of £500 million by 2012 (R&D 50%; SG&A 50%). A significant proportion of these new cost savings will be generated through reduction of infrastructure. Approximately 70% of these new savings will be directed to the bottom line to enhance profitability.

“We remain very conscious of the impact restructuring has on our employees. Where possible, we will continue to try to preserve jobs. As before, we will not be providing targets for job reductions and we will announce restructuring outcomes once employees, relevant works councils and trade unions have been consulted.”

GSK made several cuts in the R&D work force it employs in the U.S. last year.

GSK is based in London and maintains its U.S. headquarters in RTP. The company employs more than 4,000 people in the region.

(For the full earnings report and Witty’s comments, click here.)

In the three months ending Dec. 31, Glaxo turned a net profit of 1.63 billion pounds ($2.6 billion), compared to 982 million pounds a year earlier.

The strong finish pushed full-year profits up 20 percent to 5.5 billion pounds ($8.7 billion).

“Our strategy is delivering and I believe that GSK is now moving to a position where we
can deliver our goal of long-term sustainable financial performance,” Witty said.

“2009 saw GSK return to sales growth and I am confident of our prospects in 2010.”

Sales of Relenza, the company's influenza vaccine, totaled 720 million pounds for the year, compared to 57 million pounds in 2008. In the fourth quarter, Relenza sales rose to 256 million pounds from 13 million pounds a year earlier.

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