It's becoming a pattern here. While reporting its Q4 earnings today, GlaxoSmithKline announced plans to cut hundreds of millions more from its cost structure. And just like the other drugmakers who've done the same over the last week, the Glaxo cuts come seemingly despite growth in profits; the company posted a 32 percent increase in profits on revenues of £8.09 billion ($12.8 billion).
But digging deeper, it's obvious why GSK is trimming back now. Its profit rise came on the strength of flu vaccine and flu drugs, which, given the mildness of the H1N1 pandemic, aren't expected to continue delivering big sales boosts. "We remain concerned about the 2010 order book" for the swine flu vaccine, Credit Suisse analysts write in a note to investors, adding that they expect 2010 earnings to be "flat at best," because of the lower-than-expected flu-related sales, and because sales of the antiviral Valtrex are likely to fall faster than expected, now that it has generic competition.
Hence the cuts, which are also designed to boost ROI on the research side. Some £250 million ($396 million) will come out of R&D infrastructure, CEO Andrew Witty says in a statement, with another £250 million in cuts from sales and admin. "We are allocating capital to areas where we can get the best return on investment," he says, which means some research programs will be cut.
Jobs will go, too, from R&D and SG&A, but Witty was reluctant to put a number on it: "Where possible, we will continue to try to preserve jobs. As before, we will not be providing targets for job reductions and we will announce restructuring outcomes once employees, relevant works councils and trade unions have been consulted." Sources had put the workforce cuts at up to 4,000.