Pink slips pile up

GSK axes 350 R&D jobs

Amy Swinderman
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LONDON—Pink slips in the pharmaceutical industry continue to pile up with GlaxoSmithKline plc's announcement last month that it has reduced its global R&D workforce by a reported 2 percent.

While GSK Spokes-woman Melinda Stubbee would not confirm the official number of job losses—widely estimated at 350—she said the cuts affect staff at GSK's Research Triangle Park, Upper Providence and Upper Merion sites in the United States as well as facilities in Harlow, England and Verona, Italy.

The cuts are GSK's third round of layoffs since it started a restructuring program last year that is intended to counter sluggish sales, rising generic drug competition, heightened regulatory scrutiny and an estimated $2.5 billion in lost sales of its diabetes drug Avandia after a study linked it to increased risk of heart attack, Stubbe says.

"There are a whole host of issues the pharmaceutical industry is facing today, and these factors contribute to companies choosing to do things differently than we have in the past," Stubbe says. "One of the things we have announced that we're doing is creating a smaller, more focused unit in our R&D division. Unfortunately, as part of that process, jobs are going to be lost."

In addition, GSK is also facing patent expirations of key drugs such as Requip, Imigran Lamictal, Valtrex and Advair, Stubbe says.

"I think one of the issues that is important to GSK, and I suspect is important to other pharmaceutical companies, are products that are going off-patent," she says. "It takes so long to bring new products to market, and with other issues like the tougher regulatory environment, there is a real push to be more efficient and productive in R&D. That is the direction we're moving in."

Finding themselves in the same predicament, many other pharmas are making similar headcount reductions. Earlier this year, Pfizer Inc. said it expects to let 10 percent of its employees—about 10,000 positions—go this year. Wyeth said it also may cut up to 10 percent of its work force—the equivalent of 5,000 jobs—over the next three years.

2007 was a banner year for job losses, with AstraZeneca announcing thousands of layoffs company-wide, Abbott Laboratories cutting nearly 200 scientists jobs and several hundred sales rep positions and Johnson & Johnson eliminating at least three percent of its global workforce—to name just a few.

Citing "deteriorating earnings power, with little from the pipeline," investment firm JP Morgan downgraded GSK from "neutral" to "underweight."

"GSK's core product portfolio is fast losing patent protection, with very few obvious pipeline candidates to rejuvenate the outlook," writes JP Morgan's Alexandria Hauber in a recent research note. "GSK has emphasized the quality of its pipeline, but has failed to get products to market on time, if at all. The last 12 months have seen significant erosion of several flagship drugs at GSK, either from patent expiry or safety concerns. New product roll-outs are underperforming and Advair growth is slowing. Furthermore, we do not expect GSK to be able to revive its flagging Avandia franchise. We see no room to raise guidance, and a real risk that GSK misses."

Many companies with a relatively mature product portfolio will face an earnings trough sometime early in the next decade, JP Morgan motes. "For those companies, sustainability of earnings and cash flow in coming years is going to be the key concern," the firm says. DDN

Amy Swinderman

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