GlaxoSmithKline’s decision not to specify job cuts or give any earnings guidance in future has gone down reasonably well with analysts who seem in the main to be backing the efforts of chief executive Andrew Witty to simplify the organisation and make it more cost-effective.
GSK confirmed previous reports that major cuts will be made in its 100,00-plus workforce but declined to give any details or comment on the rumoured loss of 6,000-10,000 jobs. Mr Witty said that “if options exist where we can achieve our financial goals and preserve jobs we will do everything we can to do so”.
However, jobs will go but he noted that “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 and informed”. GSK is now targeting savings of £1.7 billion by 2011, up from a previous estimate of £700 million.
Mr Witty also announced that “we are no longer providing specific short-term numerical earnings guidance”. However, this change in approach “is not connected to performance, rather it should be seen as a strong signal that we are focused on implementing our strategic priorities”.
He added that “2008 was a turning point for GSK and we are now in a pivotal period of change as we redefine our business model”. The expansion of the restructuring programme “is a vital catalyst of this strategy”.
On a conference call, Mr Witty ruled out any mega-merger, reiterating his view that small- to mid-sized acquisitions in emerging markets and consumer healthcare are more likely to add value. He added that “It is clear to me that GSK’s R&D productivity has improved significantly. It is equally clear that we must relentlessly seek to neutralise the ‘cyclicality’ of R&D and produce a regular flow of assets”.
GSK now has a late-stage pipeline of around 30 assets, “and this is the sort of level we aim to sustain”, Mr Witty said. He went on to note that the cancer drug pazopanib has now been filed in the USA while Phase III trials for the diabetes drug Syncria (albiglutide) have begun. Also, GSK and partner Genmab have just submitted a file to European regulators for Arzerra (ofatumumab) for chronic lymphocytic leukaemia. The antibody was filed with the US Food and Drug Administration last week.
35% of discovery projects terminated
He noted that “we must also be efficient in drug discovery” and more than 35% of discovery projects have been terminated following reviews by GSK’s new Drug Discovery Investment Board. As part of the process, “all of our 35 Discovery Performance Units now have three-year funding in place to develop their projects”.
The response to Mr Witty’s pronouncements was positive on the whole. Deutsche Bank issued a note saying that the decision not to offer specific guidance for 2009 is a “smart move,” while other analysts noted that despite the decline in profits, GSK’s results were reasonably healthy, boosted by the weaker pound. The stock ended the day up 0.7% to £12.77.
