Important note: Information in this article was accurate in 2008. The state of the art may have changed since the publication date.
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Wall Street Journal - July 23, 2008
Jeanne Whalen, jeanne.whalen@wsj.com
The world's second-largest drug company by sales, after Pfizer Inc., will also look for ways to "simplify" the company and cut costs, Chief Executive Andrew Witty said. Areas of particular focus for streamlining include the manufacturing division and global sales force, he said. He declined to say whether this would lead to additional job cuts beyond those Glaxo announced last fall that it has declined to quantify.
What to expect from other major companies -- including analyst forecasts for profit and revenue -- as they report quarterly earnings.
Such changes are part of a three-pronged strategy Mr. Witty has been pushing since he became CEO in May: to diversify Glaxo's product mix and geographic focus; streamline its operations; and develop more breakthrough medicines. Mr.Witty has said repeatedly that tough times in the U.S. and European pharmaceutical markets are forcing Glaxo to change. Glaxo, along with other big drug makers, faces intense competition from generic rivals in those markets and higher safety hurdles to getting new drugs approved.
Glaxo's net income fell 3% in the quarter to (pounds)1.29 billion ($2.57 billion) from (pounds)1.33 billion in the year-earlier period, hit by competition from low-cost generic drugs and sluggish sales of diabetes pill Avandia and asthma inhaler Advair. Sales rose 4% to (pounds)5.87 billion from (pounds)5.67billion, with strong vaccine sales marking one of the few bright spots.
To try to boost sales in emerging markets, the company signed an alliance with South Africa's Aspen Pharmacare Holdings Ltd. that will allow Glaxo to sell Aspen's low-cost medicines in countries where Aspen doesn't currently operate.
Aspen manufactures more than 450 inexpensive, unpatented drugs and sells them in Africa and a few other markets. Glaxo will start selling some of these products in new markets and will share profit with Aspen, the company said. It will make "limited" upfront payments to Aspen, though it didn't disclose terms of the deal. Aspen produces a variety of HIV medicines, antidepressants and antibiotics, among other drugs.
Mr. Witty also gave more details on his previously stated plan to break Glaxo's drug researchers into smaller groups. Glaxo is splitting the scientists into teams of seven to 80 people that will compete for funding from a new board that includes Glaxo executives as well as outside venture capitalists and experts from the biotech sector, Glaxo said. The new groups will continue to sit within Glaxo's Centres of Excellence for Drug Discovery, or CEDDs, which each include several hundred people.
Glaxo, of Brentford, England, is also dropping its research into disorders of the gastrointestinal, urinary and reproductive systems because it doesn't feel it can make much progress in these areas.
Glaxo disappointed investors by saying it would prolong a (pounds)12 billion share-buyback program to allow it to save more cash for investing in strategic priorities in the coming years. Glaxo said the program, previously planned to end in July 2009, would be extended indefinitely.
Glaxo's cost-cutting plans include reducing the variety of drug packaging Glaxo produces, a measure that could have nearly the same impact on the company's bottom line as a new blockbuster medicine, Mr. Witty said.
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