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GSK makes cuts of GBP 700m

GSK reveals cost-cutting measures, which will mean job losses and the closure of manufacturing sites

GlaxoSmithKline (GSK) has revealed cost-cutting measures, which will mean job losses and the closure of manufacturing sites.

GSK said the restructuring activities could make annual savings of around GBP 700m by 2010. However, the implementation of the programme would cost GBP 1.5bn.

The company's out-going CEO JP Garnier did not reveal how many jobs would be slashed, but did say that most would be from sales and manufacturing. For next year, savings from the cuts could be worth GBP 350m, partially offsetting lower sales caused by generic price erosion and failing sales of its troubled diabetes drug, Avandia (roseglitazone).

The cutbacks come as no surprise to the industry, especially since GSK reported a two per cent fall in Q3 FY07 pre-tax profits to GBP 1.9bn on nearly flat sales of GBP 5.5bn. GSK revealed that total sales of Avandia and related products had plummeted 38 per cent to languish at GBP 225m in Q3.

Garnier is confident that GSK is on target to meet its FY07 earnings guideline: EPS growth of eight to 10 per cent at constant exchange rates, despite the current problems.

GSK is one in a long line of pharmaceutical majors in the throws of cost cuts. Fellow UK-based AstraZeneca (AZ) will cut 7,600 jobs, while Pfizer is in the process of shedding 10,000 employees worldwide.

GSK insists that its new drugs pipeline is full: 149 projects in clinical development, with 33 products in phase III clinical trials or registered. So far in 2007, the company has either marketed, approved or filed 15 products in the nine months to date.

Garnier said: "We are very conscious that these initiatives will impact our staff in certain areas of our business and we regret that job reductions will be a necessary part of this programme. In manufacturing, GSK will reduce the number of sites, and simplify processes and site activities. The company said it would continue to look for opportunities to outsource the manufacturing of existing products.î

The company added that it would increase investment in biopharmaceuticals, vaccines and emerging markets, such as China.

In early p.m. trading on FTSE, GSK's shares fell 18 per cent (GBP 0.23) to rest at GBP 12.38.

FDA seeks 'Black Box' warning on Avandia
The FDA is seeking a "black box" warning on Avandia, according to the Wall Street Journal.

The warning, if approved, would be the final nail in the coffin for the drug, which was linked to heart problems in an article published in the Journal of American Medical Association (JAMA) back in May 2007.

In the US, a black box warning appears on prescription drugs which may cause serious adverse effects. It also means that medical studies suggest strongly that the drug carries a significant risk of serious or even life-threatening adverse effects.

The FDA can require a pharmaceutical company to place a black box warning on the labelling of a prescription drug, or in literature describing it. It is the strongest warning that the FDA can give, short of banning a drug.

The European Medicines Agency (EMEA) has already demanded tighter labelling for Avandia, but qualified this by saying that the benefits outweighed the risks of the drug. The evaluation will now probably be revised.

Avandia is GSK's second-best selling drug, with global FY06 sales of over USD 3.2bn, or seven per cent of the group's total sales.

30th September 2008

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