As some bard once said about a rose is a rose and smells as sweet no matter the name (or something like that), cost cuts are cost cuts – and for workers affected they stink while for shareholders they smell like perfume.
Which brings us to GSK’s new “change program” announced today.
Nice term for cost cuts. But what choice does the company have?
At least GlaxoSmithKline employees across the Triangle may be breathing a bit easier this morning even though the drug giant’s CEO announced an intensified round of cost-cutting through 2016.
Andrew Witty stressed cost cuts for GSK’s European operations as GSK (NYSE: GSK) disclosed a sharp profit drop in its financial report for the most recent quarter as well as for all 2012. He put much of the blame on Europe where pharmaceutical firms are under tremendous pressure to cut drug costs while government after government struggles to drive down spending.
But Witty also faces the incredibly complex challenge of rebooting GSK in the days of treacherous “patent cliffs” with patents expiring, generics growing, and drugs becoming more costly to bring to market. He’s not alone. Management at the other big players are losing sleep, too. Look at Pfizer, which spun off its entire animal health group. And the diabetes drug Avandia nightmare for GSK – settled in the U.S. at the cost of $3 billion – is far from over as lawsuits are beginning to be filed in the U.K.
“I think this is an absolutely positive moment for us in a very different way, that’s why I’m not calling it a restructuring charge, because it’s not about restructuring in that old fashioned sense,” Witty said.
“It truly is a change.”
So Witty’s latest move is to put in place spending cuts of $1.57 billion a year through 2016. He expects associated charges of another $2.3 billion a year.
In a video interview released along with the financial report, Witty talked at length about what is being called the “change program.”
His response when asked to sum up the changes is worth repeating in full here because in a few sentences Witty explains succinctly what he is doing across so many parts of GSK. That includes new teams for R&D, which has already affected operations in the U.S., and much more.
He’s also quite adept at putting a positive spin on what’s happening, as you will read.
Manufacturing, R&D Focus
Question: “You’ve announced an expansion of the change program. Can you summarize quite how that impacts R&D, manufacturing?”
Witty: Yes, so we’ve announced today an expansion of a change program that we began back in the middle of last year. We initially announced some elements of this to do only with manufacture. We’ve now expanded its scope into more manufacture and R&D.
And, of course, to pick up some of the changes that we’re going to be making in Europe to make sure we have the right cost base in Europe.
If I just focus for a second on manufacturing and R&D, I think this is an extremely exciting, actually, opportunity for the Group and for the organisation as a whole.
“Why? Because what we’re really signalling here, this is not about closing facilities, it’s not about exiting footprint.
“What it is about is taking new technologies and really rolling them out across our networks, our factories and R&D centers.
“So, we’ve been doing a lot of work over the last several years in terms of new ways of working, for example, new lab design. New ways of making our medicines. New ways of moving on from synthetic chemistry, for example, which was developed in the 50s and 60s, applying new technologies which we’ve been developing into how we might make our medicines more efficiently, at lower cost and actually with a lower carbon footprint. So, trying to really encapsulate all of these different objectives, that’s what this charge really starts to facilitate for us.
“It’s a major change program. It will lead over the next, four, five, six years to the building up of capability in the organization which allows us to really, in my view, take a technological leap forward in how we will manufacture our products. Now that, of course, implicates both our R&D and our manufacturing divisions, which is why the charge encompasses both.
“But I think this is an absolutely positive moment for us in a very different way, that’s why I’m not calling it a restructuring charge, because it’s not about restructuring in that old fashioned sense.
“It truly is a change. It’s really a leap forward to apply technologies which we know work, we know we have been able to deploy in pilot or individual circumstances. We’re now going to really start to move forward. So continuous process manufacture; enzymatic reactions; all
those sorts of very interesting new technologies being deployed in a much wider basis, making sure that every single one of our R&D labs is designed and equipped to the best within our group.
“We’ve delivered phenomenal output over the last five years in R&D and we’ve learned what works. We learned what didn’t work. We now want to make sure every single part of the organisation looks like the bits that work brilliantly.”
If Witty is correct in his strategy, GSK will benefit.
If he is wrong …
[GSK ARCHIVE: Check out more than a decade of GSK stories as reported in WRAL Tech Wire.]