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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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February 1, 2010

GSK: More Cuts Coming

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Posted by Derek

Over the weekend I received word from several people about impending trouble at GlaxoSmithKline. A big worldwide management hoedown, the "First Line Leader" meeting which was to take place in Atlanta this week, has been abruptly canceled. The company's upper management has informed the erstwhile attendees that since financial results will be announced this Thursday, and since this announcement might have an impact on staffing (might?, they thought it was better that all the reporting teams be together for it.

Several European newspapers have since come out with word that several thousand cuts are going to be announced, but I have no more details on what's going to happen. I suppose we're all going to find out on Thursday, though. Stand by for what's going to seem like a long week if you're at GSK, and best of luck to you if you are.

Comments (84) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. David on February 1, 2010 9:59 AM writes...

Looks like 4,000 cuts, according to articles published today, mostly in Europe and the US. GSK is going to put more resources into its growth markets (ie, Asia).

With all the "resources", including jobs, going to Asia, why does the US consumer continue to pay more than the rest of the world for these company's products? The pharma companies already benefit from the tremendous publicly funded research paid for by NIH grant dollars (which in turn are funded by US taxpayers), which lays much of the groundwork for their R&D programs, yet the US consumer pays premium costs relative to the rest of the world. Something is disconnected here.

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2. Anon on February 1, 2010 10:02 AM writes...

A lot of the cuts are predicted to be R&D. You can guess who won't get the axe - that is right, the Sirtris folks. Cos then management would be admitting they made a mistake...
Isn't it great they way that GSK staff have to find out about impending job cuts through the press?

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3. Hap on February 1, 2010 10:41 AM writes...

I guess I'm just cynical, but I am wondering if the cutting of jobs in the US and Europe has less to do with the potential for market growth in developing countries and more to do with the lower cost of labor in said countries (and potential revenue growth for someone's stock options).

I can only hope I'll be eating the words ten years hence and we'll actually have a pharma industry.

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4. MedInformaticsMD on February 1, 2010 10:46 AM writes...

As I wrote at Pfizer/Wyeth Merger And Sacrificing The Future: Laying Off Scientific Staff All Over The Place:

Merging with other companies and laying off staff (instead of keeping them, hiring more of the best, and repairing the defective environment that distracts them from their work) is apparently the only "solution" that non biomedical business managers in this industry can proffer. They ... suffer a lack of creativity in thought and application.

I ask: how can anyone be of good cheer and work at their best when every stock fluctuation is met with people getting the axe? Especially when the job market is so brutal at this point in time?

What are these layoff-happy executives thinking? Are they thinking? Can they think in anything other than the short term? Are they destroying the industry?

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5. PharmaHeretic on February 1, 2010 10:49 AM writes...

Hap,

We may not have a pharma industry capable of any innovation at this rate. An increasing number of senior researchers may never get rehired, and the ones in training might decide to change course.

Hopefully, people will wake up and give MBAs and most corporate Lawyers their just rewards. Who knows..

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6. dearieme on February 1, 2010 11:19 AM writes...

There was a Golden Age of drug discovery. It is long past. The means by which this is acknowledged are messy and painful, but there it is.

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7. Used_to_give_a_damn on February 1, 2010 11:20 AM writes...

The damage this is causing in morale alone is immeasureable. When I started a few years back I felt a fierce loyalty to GSK - now I genuinely couldn't care less. It's obvious that senior management are incapable of planning more than 4 weeks ahead. They lurch from ill thought out decision to hastily pasted together 'initiative', all the while knocking increasing amounts of loyalty and drive out of their staff.

This round will prove costly, of that I am sure. Many of the brightest minds (of which there are many still at GSK) will leave, either by volunteering or (if denied) under their own steam. That leaves the mediocre - precisely who you don't want there.

Jeez it actually makes me feel sad more than anything. I used to feel pissed off, but that stage has long passed...

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8. Greg on February 1, 2010 12:09 PM writes...

Good thing GSK spent $10 Million on 2 worthless meetings in January to tell the salespeople how transparent the company is going to be with them. How many jobs would $10 million of saved?

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9. Industry guy on February 1, 2010 12:41 PM writes...

Greg-

40 jobs for 1 year. FTE = $250K/year on average (all costs)

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10. Quintus on February 1, 2010 12:42 PM writes...

I feel for the people at GSK. Once again senior management has proved itself incapable of anything but optimising short term interests at the expense of their most valuable resource. Hap is correct, it is purely the lower labour costs in these countries driving this.
I wonder when the bubble will burst, especially in China.
Damm all senior managers and their vast salaries

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11. oldtimer on February 1, 2010 1:16 PM writes...

Yes the golden age has passed, I remember it well but it was still a high risk business. Its passing does not obviate the fact that there are still medical challenges that a healthy pharma can face. Virtual pharma won't do it, seeking out the cheapest place to do chemistry won't do it either.

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12. Barber Shoppe on February 1, 2010 2:06 PM writes...

Ah, another year, another cull - the fifth in 10 years for some small-molecule folks at GSK.
Expect the really good scientists to be heading for the door this time....

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13. herewegoagain on February 1, 2010 2:34 PM writes...

I am furious and so should be the shareholders.
Over the last 2 years Slaoui & Vallance have shown their arrogance and total lack of drug discovery understanding by denegrating internal science and indulging in expensive externalization on the whim of a panel of high-falutin' academic clinicians with no industry experience. Before I left I saw the results in the Sirtris debacle and in the disintegration of all organization within R&D. China and India is cheap, but these clowns at the top are incapable of recognising the value of the experience and knowhow that they had (and still have, somehow) within GSK. In two years they've almost wrecked what was becoming a very efficient and forward-thinking R&D organisation before they took over. Shareholders should be furious at the long-term damage done and should demand their resignations. Please, just go now!

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14. CMCguy on February 1, 2010 2:51 PM writes...

#9 that $250K figure is a general FTE rate however looking at the previous GSK CEO he received $6M Total Compensation for 2008 (latest found) plus noted will get $4.9M in 2010 as his Parachute (Pt?).

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15. Hap on February 1, 2010 2:55 PM writes...

I hope his parachute is platinum - preferably either solid or mesh.

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16. Anonymous on February 1, 2010 3:14 PM writes...

@ Barber Shoppe - "Expect the really good scientists to be heading for the door this time...."

I think you're really naive if you think that they kept only their "really good scientists" in the previous "culls". Trust me, they let go of many "really good scientists" in favor of keeping the psychophants in the last rounds.

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17. emjeff on February 1, 2010 3:22 PM writes...

#7 you have it right; apparently, GSK is now planning quarter by quarter, lurching from one decision to the next based on short-term numbers. There was supposed to be a 3 year plan, but that is out the window.

Anyone feel "empowered" yet?

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18. Hap on February 1, 2010 3:33 PM writes...

5: Lots of those people had a hand in nearly sinking the world economy and costing multiple trillions of dollars. If they haven't been burned in effigy (at least) yet, I'm not certain that destroying the pharma industry will yield them any of their vitriol their actions merit. By the time any rage registers, they will, like the "terrorists" in Die Hard, be "on a beach, earning twenty percent".

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19. Barber Shoppe on February 1, 2010 3:37 PM writes...

re. Anomymous
Absolutely did not mean that they kept ONLY their really good scientists last time - the triage last year was truly insane. It's just that those ones who somehow did keep their jobs have now just lost all hope...

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20. Hap on February 1, 2010 3:55 PM writes...

Are there legal reasons (insider trading) why the financial results are kept from the rest of the company? It seems both wasteful of money (which you would have rather spent elsewhere) and an obvious message to the rest of the world when you suddenly cancel a mass meeting like this instead of (for example) not scheduling it at all? (Not having layoffs announced by the press rather than your own people might be nice, too.)

In addition, if you think that the financial results are dependent on quarter-to-quarter variations in activity, it would seem that you would want shorter-term financial guidance for management, to have an opportunity to change bad quarterly results before they happen. (That would probably lead to chaos here, but since you've already decided that that doesn't matter, you might as well follow your logic to its logical conclusion.)

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21. Dr Remulac on February 1, 2010 3:58 PM writes...

#13 is right on. GSK is doomed.

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22. Karen on February 1, 2010 4:23 PM writes...

When I was laid off from GSK back in mid-2008, it seemed clear that more layoffs were on the way. (Some people said it outright, others said "yay, everything's great!" but the "reorganization plans" never made much sense in the long term.) GSK was also fairly blunt about what they were planning in terms of outsourcing - they said they were planning to invest over 50% of every group's research budget on "external resources" which is a fancy word for "sending it to China". It's a major reason I didn't even try to keep my job and why I decided to leave pharma altogether shortly thereafter.

I wonder how long it will take before the whole chemistry research industry starts suffering greatly. Pharma can outsource their drug research overseas, but they still depend on research being done in academia - and research done in academia depends on a pool of grad students and post docs to do the work. If the jobs disappear, eventually the grad students will disappear (even foreign students - why come to the US to study if the jobs are all back home?) Then academic research will suffer, which will eventually lead to less innovation on the pharma side. (It doesn't seem like Chinese academic research can pick up the slack yet, although maybe it will.) But this process may take 20 years or more before it gets so bad that the CEO's pay attention.

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23. Greg Hlatky on February 1, 2010 4:24 PM writes...

"I hope his parachute is platinum - preferably either solid or mesh."

Or shaped like an anvil.

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24. UKchem on February 1, 2010 5:04 PM writes...

In the UK we constantly hear the government tell us how science and technology is the future of our economy. Unfortunately chemistry, biology etc has little future when AZ and GSK do their very best to destroy our employment prospects.

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25. Anonymous on February 1, 2010 5:20 PM writes...

From the London Times: "Overall, the market is expecting Witty to reveal pre-tax profits of £8.7 billion, an 11.7% increase on the previous year’s total. Group sales are predicted to rise 16% to £28.2 billion."

Seems that the only people who take risks in big pharma are the employees. There was a time when publically traded companies had some obligation to their employees. IMO, there should be laws that prohibit profitable companies from eliminating staff. And I would also argue that it should be illegal for executives to get bonuses if any staff in their line management were victims of "redundancy". So Witty, Slaoui and Valance and all those VPs would get zero bonus.

GSK let go of ~6000 employees last year and now another 4000 will go this year. Laws like that might take the wind out of the sails of some of these cretins. I hope there's a special place in hell reserved for Pharma executives... and I hope it's a very hot spot.

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26. Hap on February 1, 2010 5:28 PM writes...

I'd just be happier if the stock options they got were actually connected to the price they cost everyone else, so that their pay at least in part depended on the success of the companies they run, and preferably its long-term success (through longer-term vesting of the options). Without a long-term stake, they have little incentive not to layoff, take the bump in the stock price, and sell their shares, thus making their company weaker but themselves wealthier. Alternatively, I could always hope that investors stop assuming that "layoffs = more profit", unless it's somehow true (I don't think it is but don't know).

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27. Me on February 1, 2010 7:07 PM writes...

Pharmaceutical companies (Pfizer, GSK, or Merck etc.) spent the money to build infrastructures (buildings or factories: 100-600 millions) in China or India and has trained those workers in those countries to become experts in the field (PRACTICE MAKES PERFECT). One day, we (AMERICAN) cannot compete with them anymore because we have no jobs and cannot practice the skills. We will not know HOW to manufacture the goods (chemicals or drugs). Too bad!

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28. A on February 1, 2010 8:16 PM writes...

Hold on people, What would you do if you were running the company. Shift investment to more profitable areas, yes indeed. But, we seem to have forgotten that the society expects the Pharmaceutical companies to produce medicines. I may be among the few who will be laid-off this Thursday. But, if they can produce just one medicine that helps someone, it will all be worth it.

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29. Hap on February 1, 2010 8:34 PM writes...

They're businesses, there to make money. The problem, though, is that laying off people to save money doesn't make them more capable of producing medicines or profit.

It doesn't address any of the potential structural problems that have made them less productive than they'd like to be, but diminishes their capacity to be productive (by destroying morale, loyalty, and the internal knowledge they paid to acquire while not making the remaining people more productive). The disruption, whether necessary or not, is costly, but if you don't have any idea what'll you'll get from it, well....the military term is Charlie-Fox.

Layoffs without a plan also don't address the people who organized the company and who presumably will still be organizing the outsourced replacements - firing the soldiers and leaving the generals in place seems both unfair and counterproductive, whatever your goal.

The people who will be employed elsewhere to make medicines are likely to be cheaper, but I don't think anyone knows whether they will be more productive for the amount of revenue they create. If that isn't true, then outsourcing exposes you to lots of risk and doesn't necessarily make your company better. It does, however, enhance stock price, at least temporarily, and benefits the people who have lots of stock. Everyone else, though...

Firing people to save yourself in the short term only works when the conditions from which you hope to save yourself are likely to change eventually - since no one seems to know how to make pharma better, and laying people off doesn't generate new products, that hope seems to be nonexistent, and layoffs aren't likely to be effective.

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30. forewarned on February 1, 2010 9:40 PM writes...

The bleeding of jobs to China will not end until China allows labor unions, so that their working conditions and pay comes up to par with countries such as India or Brazil. Meanwhile, our only sensible action is to unionize ourselves.

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