Drug giant boss lays out his strategy for change

Jul 24 2008 by Iain Laing, The Journal

THE new head of Glaxo SmithKline has said the drug giant must change to survive the growing threat of generic competition which has already pushed it to axe hundreds of North jobs.

Andrew Witty became chief executive in May but yesterday laid out his strategy for the first time.

He said he wants to create a more diversified global business to reduce GSK’s dependence on a small number of drugs, boost productivity, and create a more cost-efficient company.

“It is clear that GSK must change if it is to be successful in the future,” he said.

The business has already started cutting thousands of jobs as it works to save £700m within three years, largely to beat off competition from makers of generic drugs.

The world’s second largest drugmaker is currently shedding 300 North jobs at Ulverston, Cumbria, where it had previously reduced the workforce from 1,000 to 540. The latest cuts will also see the size of the plant halved to 30 acres.

A cloud still hangs over the 1,000 staff in Barnard Castle, County Durham, where it is the biggest employer. Glaxo said it has no current plans to reduce staffing there but has said the situation is under review.

Witty’s comments came as the group posted better-than-expected pre-tax profits of £1.84bn in the three months to June 30, 3% below last year. Revenues were also 2% lower at £5.87bn after lower sales of diabetes treatment Avandia.

But the group kept its full-year forecast for a mid single-digit percentage decline in underlying earnings per share, dashing hopes it might raise its guidance, and some analysts were disappointed in a meagre rise in sales of its top-selling drug, Advair for asthma.

Witty, who has taken over from long-serving chief executive Jean-Pierre Garnier, said the pharmaceutical sector faced immense challenges as the demand for better and cheaper medicines added to the pressure from copied treatments.

He said GSK would look to make new investments in fast-growing areas such as vaccines and consumer healthcare products.

GSK would grow its presence in emerging markets to expand its geographical footprint, through moves such as a tie-up with South African pharmaceuticals firm Aspen announced yesterday.

The company added that as much as 50% of its new drugs could come from outside the business in the future, as it externalises more of its research and development work to reduce the risk and expenditure involved in developing new treatments.

GSK, which employs around 100,000 people in more than 100 countries, saw shares fall around 3% following the update as investors were underwhelmed by the group’s results and its strategic update.

GSK has started cutting thousands of jobs as it works to save £700m within three years