GSK posts profits, shakes up R&D

Pharmaceutical giant GlaxoSmithKline today reported a profitable fourth quarter despite a dip in sales and announced a shakeup of its research-and-development efforts designed to boost future returns.

Great Britain's largest drugmaker, which has its North American headquarters in Research Triangle Park, reported that sales in the fourth quarter fell 2 percent to $11.24 billion after adjusting for currency fluctuations. Bloomberg News reported that sales were less than analysts had anticipated. The results have been converted from British pounds.

Net income totaled $1.93 billion, reversing a loss of a year ago.

"Pricing pressure has been seen across a number of the group's markets, while the company's R&D efforts are yet to yield what the group itself sees as an acceptable return," Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers, told the Associated Press.

CEO Andrew Witty reported in his review of the results that the company has decided to shut down three of its 38 small-scale R&D units, which the company calls Discovery Performance Units, while at the same time creating four new ones.

The company created the DPUs in 2008 in a move designed to increase efficiency. Each DPU has between 5 and 70 scientists and have a singular focus, such as a specific disease.  

Witty didn't specify where the new or the discontinued DPUs are located. R&D is one of the chief functions of the company's RTP operations, where it has about 3,800 workers. GSK also has 600 workers at its manufacturing plant in Zebulon.

Witty wrote that he was encouraged that the DPUs have delivered increased returns on investment to date, but more progress was possible.

"Over the last three  years, I have visited many of the DPUs and am very pleased with the energy, approach and productivity we are seeing from our scientists in these units," he stated.

A performance review of the DPUs led to the shakeup.

The review also led to decisions to increase the budget of six DPUs and cut the budget of five others.

Witty said GSK expects as many as 30 experimental drugs to be in "late-stage development" over the next three years. The company also expects to file for regulatory approval of four drugs this year.

"This increase in productivity would mean GSK is moving towards sustainable replenishment of its late-stage pipeline, with no increase in cost," he said.

GSK also plans to continue its cost-cutting efforts, targeting $473.6 million in reductions this year. To date its program has reduced costs by $3.47 billion.

GSK's revenue has ben depressed by declining sales of the controversial diabetes drug Avandia, the herpes medicine Valtrex and its pandemic flu vaccines. Its "underlying sales" after excluding those drugs rose 1 percent.

GSK also said that it plans to repurchase between $1.57 billion and $3.15 billion pounds worth of its shares this year, less than the $3.47 billion it purchased last years. Analysts were anticipating a bigger buyback program, Bloomberg reported.

Stock buy-backs are appealing to investors because they boost earnings on a per-share bases and are perceived as a sign of management confidence in the business.

For all of 2011, GSK generated $44.09 billion in sales and net income of $8.14 billion.

GSK's American Depositary Receipts, which are similar to stock for foreign-based companies, were trading at $44.44, down 66 cents, this morning.