GSK to streamline manufacturing sales and r&d

GlaxoSmithKline's total pharmaceutical turnover fell by 2% to £4.6bn in the third quarter of 2007, coinciding with a significant new £1.5bn Operational Excellence programme to improve the effectiveness and productivity of its operations.

The new programme is expected to deliver total annual pre-tax savings of up to £700m by 2010, of which manufacturing and selling and administration will account for 40% each and the remaining 20% coming from r&d.

GSK expects to realise the majority of annual savings within the first two years of the programme, with approximately £350m expected by 2008 and £550m by 2009. These savings will partly mitigate the expected impact from generic competition and lower Avandia sales.

In manufacturing, the company plans to reduce the overall number of sites operating and simplify processes and site activities to reduce over-capacity. It will also continue to seek opportunities to outsource manufacture of existing products and for low-cost sourcing of materials, while focusing its capability on new products.

GSK has conducted several sales force pilot initiatives to assess new sales structures and selling techniques. Results from these have provided new opportunities to evolve its traditional selling methods competitively, the company says, including "adopting more tailored and customised sales approaches in both developed and emerging markets".

In r&d, GSK will continue to invest in the development of its late-stage pipeline and will increase investment in key areas of future growth, such as biopharmaceuticals, oncology, vaccines, neuroscience and emerging markets such as China. Cost savings in r&d will be focused on simplification and streamlining of support infrastructure.

"We are very conscious that these initiatives will impact staff in certain areas of our business and we regret that job reductions will be a necessary part of this programme," said JP Garnier, ceo of GSK. "However, by making the changes we envision, GSK will be better placed to address the challenges we face in 2008."

In the third quarter of 2007 turnover in the US fell by 7% to £2.2bn. This was despite a 5% rise in sales of Advair , which was offset by continued generic compatition and a reduction in sales of Avandia. Turnover in Europe was up 1% to £1.3bn with sales growth of vaccines and newer products offsetting generic competition to older products and further price cuts mandated by European governments. Sales in International were £1.0bn, up 9%, with good growth seen in emerging markets including India and China.

GSK currently has 149 projects in clinical development: 89 NCEs, 37 PLEs and 23 vaccines. It has 33 key assets currently in phase III development or registration, and has recently signed three major in-licensing agreements, further strengthening its late-stage pipeline in key therapeutic areas: oncology, autoimmune diseases and neuroscience.