Advair sales slide triggers another $1.6B in cost cuts at GlaxoSmithKline

Brace yourselves for layoffs at GlaxoSmithKline ($GSK). The saga is familiar: An aging blockbuster loses steam to competing meds, and its maker gets out the cost-cutting ax to compensate. This time, the faltering drug is Advair, which adds some new twists to the story--including a warning to the whole pharma industry about formulary placement.

But first, the basics. Advair is an $8.25 billion behemoth, the fourth-best-selling drug on FiercePharma's list of top 10 products in the world, so it represents a big chunk of Glaxo's sales. And last quarter, it went into a skid, so much so that investors started rumbling about a management shake-up.

Glaxo didn't want a repeat of that scenario. To make up for the slide in Advair sales, Glaxo quietly started cutting spending in sales and administration, to boost third-quarter earnings to decent levels, the company said in its earnings release. Now, GSK says it plans to whittle out £1 billion (about $1.6 billion) in costs over the next 3 years.

The cuts will hit commercial operations, support functions, and pharma R&D and manufacturing, and come on top of last year's £1 billion. restructuring announcement. The new savings also don't include the cuts associated with integrating Novartis' ($NVS) vaccines unit and setting up the consumer health joint venture.

No job numbers were mentioned, but the company said that "restructuring proposals affecting headcount" would follow the usual rules about employee consultations ahead of time. The initial cost savings will help boost earnings next year, the company said in a release, with about 50% of the cost benefits arriving in 2015.

Advair is already off patent, but because of the technological complexity of its inhaler device, GSK enjoyed a longer monopoly. Copycat competitors have started to crop up in Europe, though, including versions from Teva Pharmaceutical Industries ($TEVA) and Novartis' Sandoz unit. And despite rules against automatic generic substitution, they've been leaching sales away from the GSK brand.

But head-to-head brand competition in the U.S. has taken a toll, too. AstraZeneca ($AZN) has been aggressively promoting its respiratory drug Symbicort as it works to recover from its own patent cliff, reportedly cutting prices to grab new market share. Plus, Symbicort won a spot on Express Scripts' ($ESRX) exclusionary formulary that went into effect in January--and Advair did not.

The contract negotiations for 2015 were a good news, bad news situation. Glaxo was able to get Advair back onto the Express Scripts formulary by offering discounts. And it persuaded CVS Caremark to knock Symbicort off, thanks, once again, to those discounts. All that price-cutting will take its toll going forward, however.

"[W]e expect U.S. sales of the product to continue to decline in line with recent trends," the company said, as recent price cuts offset a recent uptick in volume.

With GSK in the throes of launching Advair follow-ups Anoro and Breo--and preparing to roll out Incruse and Arnuity, two other respiratory meds--the company has a lot of work to do in the field. "The transition in our respiratory business is significant and clearly challenging," CEO Andrew Witty said in a statement. But the company "remain[s] confident" that it can hang onto its leadership position in the field, he said. "[W]e expect that total global respiratory sales will return to growth in 2016," he said.

- read the GSK release (PDF)

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