Regulators in the U.K. and Europe have been been tightfisted with what they will spend on drugs, creating financial pressures on companies. But the home country of the U.K. will be spared when GlaxoSmithKline begins making cuts to manufacturing to save costs this year.
In fact, the Financial Times reports that CEO Andrew Witty said employment in the U.K. will grow because the U.K.'s so-called "patent box" legislation enticed GlaxoSmithKline ($GSK) to invest in manufacturing capacity there. Last year, the company announced plans to invest £500 million ($785 million) in new facilities and upgrades. Witty's comments followed the company's 2012 earnings report in which he said revenue in Europe fell 7% last year, creating the need to act.
The company plans to cut at least £1 billion ($1.6 billion) in costs in Europe by 2016. When discussing the plan, Witty was short on details but said, "This includes a series of technological advances and opportunities to eliminate complexities, which we believe can continue to transform our long-term cost competitiveness in both manufacturing and R&D." The plan includes simplifying the supply chain process, shortening cycle times, lowering inventory levels and reducing the company's carbon footprint.
That contrasts with the U.K., where the company last year announced plans to build its first new manufacturing plant there in 40 years, and to upgrade some existing plants. That was prompted, in part, by the country's patent box law, which beginning this year cuts to 10% the corporate tax rate on profits from products "invented" in the U.K. GlaxoSmithKline has decided to build a £350 million ($463 million) plant in Ulverston, U.K., but to also invest another £230 million ($304 million) at three other sites.
GSK is not the only company looking at supply chain and manufacturing efficiencies to squeeze out costs. Teva Pharmaceutical Industries ($TEVA) CEO Jeremy Levin late last year said the generics giant intended to slice $2 billion in costs out of its system in several years, primarily by changes to its manufacturing network and sourcing strategy. The savings push will see Teva focus on bigger, more efficient plants, while shifting production to lower-cost locations.