GSK cutting 900 jobs in RTP

by David Bracken, News and Observer, December 3, 2014.

The Triangle felt the brunt of the global restructuring now taking place in the pharmaceutical industry on Wednesday as GlaxoSmithKline announced plans to cut 900 jobs here.

GSK, which has seen its sales deteriorate faster than expected over the past year, is shrinking both its research and development operations and its pharmaceutical business in the U.S. The company said half of the affected employees in Research Triangle Park will be offered positions with a newly created unit in another company while an unknown number of others will be able to relocate to GSK’s campus in the Philadelphia area.

The bulk of the R&D jobs being cut in the U.S. are in RTP, where GSK has 4,500 employees and contractors, including 2,500 who work in R&D. The London-based company is consolidating its R&D efforts at two sites – one in the Philadelphia area and the other in Stevenage in the United Kingdom.

Cuts in the company’s pharmaceutical business will affect employees in RTP, Philadelphia and in field offices around the country. GSK said those retail sales teams focused on launching new medicines “will largely not be affected.” Also not affected by the cuts are employees at GSK’s manufacturing facility in Zebulon.

About 450 GSK employees working in R&D in RTP will be offered jobs in a new business unit the company is creating within  Parexel, a Boston-based contract research organization that has offices in Durham. The new unit will be largely based in the Triangle, GSK said, and will do drug-development work for both GSK and other companies.

GSK will eliminate about 450 positions in the second quarter of next year, the company said in a letter filed Wednesday with the N.C. Department of Commerce. The rest of the layoffs will occur by the end of 2015.

GSK, like other big pharma companies, has been spinning off or selling noncore business units and refocusing on its most promising product areas. In GSK’s case, that is vaccines, consumer products and select pharmaceuticals, such as respiratory and HIV.

But the rapid decline in GSK’s respiratory business, which accounted for 30 percent of its global sales last year, has added urgency to its need to cut costs. Advair, the company’s best-selling asthma inhaler, accounts for almost 20 percent of GSK’s sales but has been losing market share to cheaper competitors.

“I think the respiratory business is declining faster than even GSK thought,” said Ashtyn Evans, a health care analyst with Edward Jones in St. Louis, Mo. “When the sales aren’t growing, they’ve got to cut costs to grow their earnings.”

The job cuts announced Wednesday are part of a $1.6 billion, three-year cost-cutting strategy that GSK announced in October when it reported third-quarter earnings.

Evans said because GSK’s products are focused more on primary care, the company is under greater pricing pressure than pharmaceutical companies that focus on specialty drugs that are riskier to develop but can command more from insurers.

“They are getting more specialized, but it’s still the primary care that is facing more pricing pressure,” said Evans, who has a hold rating on GSK’s stock.

The challenge for GSK going forward is to diversify its revenue sources to offset the sales declines that are expected to continue as Advair matures. The drugmaker is hoping that its new respiratory products, Breo and Anoro, will help fill the gap.

The company’s vaccine business is also expected to be an area of growth. Edwards Jones projects that business will grow about 5 percent per year, and make up 20 percent of GSK’s global sales by 2018.

GSK is in the process of acquiring a vaccine business from Novartis. That deal will add 14,000 employees to GSK’s workforce, and is expected to result in another round of cost-cutting when it closes, Evans said.

GSK emphasized on Wednesday that it has a diverse drug-development pipeline with promising products in HIV, respiratory, genetic conditions and other areas.

Evans said GSK does have more products in various stages of development than most of its competitors, but she said it also has fewer potential blockbuster drugs that could achieve annual sales of more than $1 billion.

“At some point we would hope that over time the pipeline would see success and kind of support long-term growth,” Evans said. “But right now we expect long-term sales growth to be relatively flat over the next few years.”

GSK shares closed Wednesday at $46.71, down 43 cents. The stock is down 12.5 percent this year.

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