GSK manufacturing will take hit in cost-cutting move

GlaxoSmithKline's ($GSK) manufacturing network will take a hit as the company cuts costs in the face of falling revenues. The U.K. drugmaker was shy on details but said in an earnings release Wednesday that it needed to "rescale" R&D and manufacturing, as well as other operations. It reported a 3% revenue decline for its third quarter.

When all is said and done, the company expects to cut costs about £1 billion ($1.6 billion) a year in the next three years, with much of that coming in the third year. It said that investments in new manufacturing capacity, as well as remediation costs, had contributed to a higher cost of sales in the third quarter, which came in at 29.1%, compared with 27.9% in Q3 2013. The company said in the first 9 months it had "major restructuring charges of £293 million" ($470 million), including £203 million ($325.8 million) in costs for its Major Change program, which is looking at ways to simplify its supply chain processes.

The company did not say where it was having to spend on remediation, but it has been having issues at a vaccine plant in Canada this year, which the FDA cited in a warning letter in June because of concerns over the quality of the new FluLaval vaccine and its intermediates. In the spring, the FDA issued a warning letter to a GSK plant in Ireland that released batches of active ingredient made with solvents contaminated from a "waste tank." The problem led GSK to recall some batches of its antidepressants Paxil and Seroxat.

The company provided no specifics about how many employees would be cut from what areas but said "restructuring proposals affecting headcount" would follow employee consultations where required. The retrenchment is a bit of a reversal from two years ago, when GSK made a public display of its intention to invest more than £500 million ($790 million) in manufacturing projects in the U.K., moves it said would eventually lead to the creation of 1,000 jobs.

- here's the release (PDF)